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Carbon Tax Turns Into Climate Fight

EU contends that CBAM levels the playing field for domestically manufactured goods adhering to stringent green standards and reduces emissions from imports


The European Union’s proposal to implement a carbon tax on carbon emissions associated with the production of goods imported from countries such as India and China has ignited a contentious debate at the United Nations climate conference in Dubai. Developing nations argue that the tax poses a threat to livelihoods and economic growth.

The initiative, known as the Carbon Border Adjustment Mechanism (CBAM), aims to establish a price on carbon emitted during the production of energy-intensive products like iron, steel, cement, fertilisers, and aluminium in non-EU countries.

The EU contends that CBAM levels the playing field for domestically manufactured goods adhering to stringent green standards and reduces emissions from imports. However, concerns abound, particularly among developing countries, that this tax may impede their economies and render trade with the EU prohibitively expensive.

European Commissioner Wopke Hoekstra emphasised CBAM’s primary goal of preventing carbon leakage in the supply chain during a press conference at COP28. He asserted that the tax is crucial for funding and achieving the EU’s climate target of a 55 percent reduction in emissions by 2030.

A study by the United Nations Conference on Trade and Development indicated that a carbon tax of USD 44 per tonne could halve pollution from the supply chain. However, it was also estimated that while rich countries might gain USD 2.5 billion from the tax, poorer countries could face losses of up to USD 5.9 billion.

With the EU already capping emissions from industries within its 27 countries, the fear is that without a carbon tax on imports, industries may relocate to nations outside the bloc with less stringent greenhouse gas emission regulations. Similar considerations are being explored by the United States and Canada, raising concerns about overwhelming developing countries.

India strongly opposes the carbon tax, with former steel secretary Aruna Sharma urging continued opposition while acknowledging the need for industries to invest in reducing their carbon footprint. Mohamed Adow of Power Shift Africa described carbon taxes as a potential “trade weapon” that could adversely impact Africa, potentially resulting in a loss of trade revenue amounting to at least USD 25 billion.

There are also technical concerns, with experts noting that carbon taxes may conflict with UN climate change rules that prevent countries from dictating how others should reduce emissions. Developing countries fear exclusion from Western markets due to the perceived inability to clean up their businesses swiftly, and there are apprehensions about being caught in conflicts between China and the West, with China seen as the primary target of the EU’s carbon tax.

While some acknowledge that a carbon tax may be painful for certain countries in the short term, proponents like K. R. Raghunath of the KIS group argue that it will ultimately have a positive impact by reducing planet-warming emissions. The sentiment is that everyone must contribute to reducing carbon emissions for the greater good in the long run.



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