The UK-CBAM: A New Challenge to India's Exports and the Role of Domestic Carbon Pricing
UPSC Relevance
Prelims: Environment (Climate Change, Carbon Pricing, Carbon Markets, UNFCCC, Paris Agreement); Indian Economy (International Trade, FTAs, Tariffs, Non-tariff barriers).
Mains:
General Studies Paper 3 (Environment & Economy): Conservation, environmental pollution and degradation; Indian Economy and issues relating to mobilization of resources; Effects of economic policies on the economy. CBAM is a classic example of a "non-tariff barrier" and a major issue in international trade and climate negotiations.
Key Highlights from the News
The Carbon Border Adjustment Mechanism (UK-CBAM), which the UK plans to implement from January 2027, has the potential to negate the benefits of the India-UK Free Trade Agreement (India-UK FTA).
CBAM is a type of border tax imposed based on the amount of carbon emitted during the manufacturing of imported products.
Although the normal import duties on products like steel and aluminum will become zero under the FTA, CBAM is likely to add an extra cost of 20-40% to these products.
Due to the large difference between India's carbon price and the UK's carbon price, Indian exporters will have to pay a large amount in taxes.
There is criticism that such unilateral measures are against the spirit of multilateral climate agreements like the UNFCCC and the Paris Agreement.
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