What is a Carbon Border Tax?
A carbon border adjustment tax is a duty on imports based on the amount of carbon emissions resulting from the production of the product in question. As a price on carbon, it discourages emissions. As a trade-related measure, it affects production and exports.
The proposal is part of the European Commission’s European Green Deal that endeavours to make Europe the first climate-neutral continent by 2050.
A carbon border tax is arguably an improvement from a national carbon tax.
A national carbon tax is a fee that a government imposes on any company within the country that burns fossil fuels.
What are the Causes Behind Imposing Carbon Tax?
EU and Climate Change Mitigation: The EU has declared to cut its carbon emissions by at least 55% by 2030 compared to 1990 levels. Till date, these levels have fallen by 24%.
However, emissions from imports contributing to 20% of the EU’s CO2 emissions are increasing.
Such a carbon tax would incentivise other countries to reduce GHG emissions and further shrink the EU’s carbon footprint.
Carbon Leakage: The Emissions Trading System of the EU makes operating within the region expensive for certain businesses.
The EU authorities fear that these businesses might prefer to relocate to countries that have more relaxed or no emission limits.
This is known as ‘carbon leakage’ and it increases the total emissions in the world
Impact on India: The EU is India’s third largest trading partner. By increasing the prices of Indian-made goods in the EU, this tax would make Indian goods less attractive for buyers and could shrink demand.
The tax would create serious near-term challenges for companies with larger greenhouse gas footprint.
India is not the target of this policy of the EU, the target is Russia, China and Turkey which are large emitters of carbon and major exporters of steel and aluminium to the EU.
There is little reason for India to be at the forefront of the opposition. It should rather talk directly to the EU and bilaterally settle the issue.
A mechanism like Carbon Border Tax for charging imported goods at borders may spur adoption of cleaner technologies.
But if it happens without adequate assistance for newer technologies and finance, it would rather become disadvantageous for the developing countries.
As far as India is concerned, it must assess the advantages and disadvantages that it is likely to face with the imposition of this tax and talk to the EU with a bilateral approach.
COP?
COP (Conference of the Parties) is a series of United Nations climate change conferences, which have been running since 1995.
COP is the name given to the United Nations Climate Change Conferences. The goal of these conferences is to review progress made by members of the United Nations Framework Convention on Climate Change (UNFCCC) to limit climate change.
The 2022 United Nations Climate Change Conference or Conference of the Parties of the UNFCCC, more commonly referred to as COP27, was the 27th United Nations Climate Change conference, held from 6 November until 18 November 2022 in Sharm El Sheikh, Egypt.
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