Current Context: 

The ADB predicts that CBAM will significantly reduce Asian exports to the EU, particularly from western and southwestern Asia, and potentially impact steel from India.

About Current context:

  • A European Union plan to impose tariffs on high-carbon imports could hurt developing countries in Asia but is unlikely to lead to big reductions in greenhouse gas emissions.
  • Starting January 1, 2026, the CBAM, or carbon tax, will impact seven carbon-intensive sectors including steel, cement, fertiliser, aluminium, and hydrocarbon products.

What is Carbon Border Tax?

  • A Carbon Border Tax is an import duty imposed on a product’s carbon emissions during its production.
  • This is a method of integrating the environmental cost of goods traded across borders.
  • By imposing this tax, countries aim to incentivize cleaner production processes and reduce emissions globally.
  • The Carbon Border Tax has become a crucial policy tool in combating climate change.

Reason Behind Imposing Carbon Tax:

  • EU and Climate Change Mitigation: The EU has pledged to decrease its carbon emissions by at least 55% by 2030 compared to 1990 levels. The EU’s Carbon Border Tax aims to reduce import-related emissions, which account for 20% of CO2 emissions, by encouraging other nations to reduce their emissions.
  • Carbon Leakage: The Carbon Border Tax aims to prevent carbon leakage by ensuring a level playing field for industries operating in the EU, despite the high costs of operating there.
  • Carbon Pricing: Carbon pricing, a market mechanism, discourages fossil fuel use, addresses climate issues, and aligns with commitments, influencing consumer behavior, corporate strategies, and technological advancements.

Impact on India:

  • Trade Relations: The tax could impact India’s EU exports, necessitating the adoption of cleaner production methods by Indian industries to maintain competitiveness.
  • Economic Realities: India faces the challenge of balancing climate goals with economic growth, necessitating investment in sustainable practices and industry safeguarding.
  • Negotiations: India and other nations have raised concerns about market distortion and trust issues due to carbon border fees, highlighting the need for crucial diplomatic negotiations.

Way Forward:

  • Domestic Measures: India should strengthen domestic climate policies, encouraging low-carbon technologies and sustainable practices.
  • Bilateral Engagements: Engaging with the EU and other trading partners is essential to address concerns and find common ground.
  • Global Cooperation: Climate change is a shared challenge. Collaborative efforts can lead to effective solutions.


 The Carbon Border Tax represents a delicate dance between environmental imperatives and economic realities. As India navigates this complex landscape, it must prioritize sustainable growth while contributing to global climate action.

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