Why has the EU introduced CBAM? What are the concerns of BASIC countries on CBAM? What is the principle of CBDR-RC? Take a look at the essential concepts, terms, quotes, or phenomena every day and brush up your knowledge. Here’s your knowledge nugget for today.

(Relevance: Carbon tax is one of the hot topics for UPSC. In the past, it has asked questions on the outcome of major climate summits like the Kyoto Protocol and COP 15. In this regard, with all the debates going around CBAM, it becomes important for you to know what it is and why India is objecting to it. )

China, India, and other BASIC country partners Brazil and South Africa have been complaining against the Carbon Border Adjustment Mechanism (CBAM) introduced by the EU last year. On Friday, China and India confronted the European Union (EU) and warned that unilateral trade measures could be detrimental to multilateral cooperation.

1. On the opening day (11th November) of the COP29 meeting, China, on behalf of the BASIC countries, had moved a proposal to include a discussion on “unilateral restrictive trade measures” — without mentioning CBAM — in the formal agenda of the COP meeting. The EU had strongly opposed the move, and decisions at COP are taken only by consensus. The COP presidency had then referred the matter for informal presidential consultations — the first round was held Friday morning.

2. The BASIC group said CBAM unfairly targeted developing countries. Chinese and Indian negotiators also argued that it violated several provisions of existing international regulations related to both trade and climate change. The EU, however, denied that CBAM was aimed at any particular group of countries or was discriminatory.

3. The EU came up with the Carbon Border Adjustment Mechanism in 2021 which was rolled out in 2023. The European Commission’s website describes it thus, “Designed in compliance with World Trade Organization (WTO) rules and other international obligations of the EU, the CBAM system will work as follows: EU importers will buy carbon certificates corresponding to the carbon price that would have been paid, had the goods been produced under the EU’s carbon pricing rules. Conversely, once a non-EU producer can show that they have already paid a price for the carbon used in the production of the imported goods in a third country, the corresponding cost can be fully deducted for the EU importer.”

4. In simple, CBAM taxes certain products coming in from other countries on the basis of their emissions footprint in their production process. For instance, if the imported steel was produced through a process that entailed higher emissions than the emissions standards for that product in Europe, it would be taxed.

5. CBAM allows industries in Europe to remain competitive while continuing to maintain high environmental standards. It prevents these industries from relocating their production to countries where the production might be cheap owing to less strict emission norms, a situation described as carbon leakage. In the process, it hopes to contribute to reducing global emissions.

6. However, it hurts the export competitiveness of developing countries such as China and India. The developing countries point out that CBAM overlooks the “differentiation” embedded in the global climate architecture that allows them to be treated differently than the developed nations.

7. Industries in developed economies, with emissions standards comparable to the EU, stand to benefit from a CBAM-like measure since their products would not be taxed and, hence, become more competitive in the European market. CBAM, thus, can have the net effect of helping industries in the developed world while putting those in developing countries at a disadvantage.

8. A study by the Asian Development Bank Climate published in February this year showed that measures such as CBAM would likely have minimal impact on reducing greenhouse gas emissions compared to some other emissions trading options that are available.

1. The UNFCCC came into being in 1994, with the mandate to find a solution to the problem of climate change. It divided the world into two neat groups — countries that needed to cut GHG emissions and those that didn’t. The 37 countries that were supposed to take emission cuts were named in Annexure I of the Convention and came to be famously known as ‘Annex-I’ countries. The rest of the world was the ‘non-Annex countries’.

2. Annex-I countries were rich and more capable, and thus better placed to take emission cuts, which could not be achieved without restraining economic activity in some way. Also, it wasn’t as if the non-Annex countries needed to do nothing. The UNFCCC realised, and stressed, that climate change was a global problem, and needed to be tackled with global effort. Once emitted, GHGs cannot be restricted to a particular country or region and added to the global concentration in the atmosphere.

3. Non-Annex countries too were, therefore, expected to act on climate change — taking adaptation measures and acting swiftly to move to a low-carbon growth trajectory. However, mandatory emission cuts were something they were supposed to be exempt from, at least in the near term.

4. This led to the establishment of the principle of differentiation, through the expression ‘Common But Differentiated Responsibilities and Respective Capabilities’ (CBDR-RC), in the UNFCCC, recognising the fact that while all countries share a responsibility to address climate change, their obligations differ according to their capacities and circumstances.

(Source: What is carbon border tax, which India opposed at COP27, Why India and China have pushed against climate change-related trade measures at COP29, From CBDRs to INDCs: Acronyms on the road to averting climate change disaster)

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