Source: IE
Context: India has stated it will retaliate if the UK imposes a carbon tax (CBAM) on Indian exports starting January 2027, calling it a violation of the CBDR (Common But Differentiated Responsibilities) principle under international climate agreements.
About CBAM (Carbon Border Adjustment Mechanism):
- What is CBAM?
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- It is a form of carbon tax on imports imposed by developed countries (like the EU or UK) based on the carbon intensity of production in the exporting country.
- Aims to prevent carbon leakage by equalizing carbon prices between domestic and imported goods.
- The UK’s version of CBAM is expected to start from January 1, 2027.
- Sectors like steel, aluminium, cement, and energy-intensive goods are likely to be affected first.
- India’s Key Concerns:
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- Unfair Discrimination: CBAM disproportionately affects developing countries like India that have lower per capita emissions but higher carbon intensity due to developmental needs.
- Violation of CBDR: It goes against the UNFCCC and Paris Agreement principle of “common but differentiated responsibilities“, which acknowledges that developing countries require more time and support to decarbonize.
- Double Taxation Risk: Indian industries may have to pay both a UK border carbon tax and domestic environmental levies, reducing competitiveness.
- Impact on MSMEs: India sought a carve-out or exemption for labour-intensive MSME sectors such as textiles and leather, which was not granted.
- Implications for Indian Trade:
- Even with FTA tariff cuts, exports could face effective protectionist barriers due to
- Indian exports in textiles, ceramics, engineering goods, steel may be disproportionately hit due to sustainability compliance costs.
- Could necessitate new regulations, ESG standards, and carbon tracking mechanisms within India.
- Risk of CBAM expanding to cover labour, IPR, and environmental compliance clauses, impacting India’s trade sovereignty.
