Recently, a coalition of nations, including India, collectively expressed their opposition to the Carbon Border Taxes suggested by the European Union (EU) during the 27th Conference of Parties (COP) in Sharm El Sheikh, Egypt.
CARBON BORDER TAX
- A Carbon Border Tax is a levy imposed on imports, determined by the level of carbon emissions associated with the production of the imported goods.
- Serving as a carbon pricing mechanism, it acts as a disincentive for emissions, influencing both production processes and exports.
- This proposal is aligned with the European Commission’s European Green Deal, which aims to establish Europe as the initial climate-neutral continent by 2050.
- A Carbon Border Tax is seen as an enhancement compared to a national carbon tax, which is a fee imposed by a government on companies operating within its borders that engage in fossil fuel combustion.
FACTORS TO IMPOSE CARBON TAX
EU and Climate Change Mitigation:
The European Union (EU) has committed to reducing its carbon emissions by a minimum of 55% by 2030, relative to 1990 levels. Despite achieving a 24% reduction to date, emissions from imports, constituting 20% of the EU’s CO2 emissions, are on the rise. The introduction of a carbon tax is intended to encourage other nations to diminish their greenhouse gas (GHG) emissions, contributing to a reduction in the EU’s overall carbon footprint.
Carbon Leakage:
The EU’s Emissions Trading System has increased operating costs for certain businesses within the region. There is a concern among EU authorities that these businesses might choose to relocate to countries with more lenient or no emission restrictions. This phenomenon, termed ‘carbon leakage,’ has the potential to elevate global emissions.
CONCERNED ISSUES
Several issues arise in relation to the proposed Carbon Border Tax:
- Response of the BASIC Countries:
- The BASIC (Brazil, South Africa, India, and China) countries jointly opposed the EU’s proposal, deeming it “discriminatory” and contrary to the principles of equity, including ‘Common but Differentiated Responsibilities and Respective Capabilities’ (CBDR-RC). These principles recognize the responsibility of wealthier nations to provide financial and technological support to developing and vulnerable countries in the fight against climate change.
- Impact on India:
- As the EU is India’s third-largest trading partner, the imposition of this tax could lead to increased prices of Indian-made goods in the EU. Consequently, Indian goods may become less appealing to buyers, potentially diminishing demand. The tax poses near-term challenges for companies with larger greenhouse gas footprints.
- Non-Consensual with Rio Declaration:
- The EU’s pursuit of a uniform environmental standard globally contradicts the global consensus outlined in Article 12 of the Rio Declaration. This article asserts that standards applicable to developed countries cannot be imposed on developing nations.
- Change in the Climate-Change Regime:
- The proposed tax would necessitate adjusting the greenhouse gas inventories of importing countries, shifting from a production basis to a consumption basis. This adjustment could significantly alter the climate change regime.
- Protectionist Policy:
- The policy may be perceived as a form of disguised protectionism. Protectionism involves government measures that restrict international trade to boost domestic industries. There is a risk that the Carbon Border Tax could act as a protectionist device, excessively safeguarding local industries from foreign competition in what is known as ‘green protectionism’.
WAY FORWARD
- Understanding the Policy Intent:
- Recognizing that the EU’s policy is primarily directed at larger emitters such as Russia, China, and Turkey, especially in the steel and aluminum sectors, India need not position itself as the primary opposition force. Instead, a more constructive approach involves engaging in direct and bilateral discussions with the EU to address concerns.
- Direct Engagement with the EU:
- Rather than leading the opposition, India should engage directly with the EU to facilitate a bilateral resolution of the issue. Direct dialogue can help foster a better understanding of India’s specific circumstances and potentially lead to mutually beneficial outcomes.
- Consideration of Cleaner Technologies:
- While a mechanism like the Carbon Border Tax may encourage the adoption of cleaner technologies globally, it is crucial to ensure that such a transition is supported by adequate assistance for newer technologies and financial resources. Without proper support, the policy could become disadvantageous for developing countries.
- Assessment of Advantages and Disadvantages:
- India should thoroughly assess the potential advantages and disadvantages it may face with the imposition of the Carbon Border Tax. This assessment can serve as a basis for informed negotiations and discussions with the EU, allowing India to safeguard its interests.
- Bilateral Approach:
- In dealing with the EU’s proposed policy, India is encouraged to adopt a bilateral approach. This approach involves direct and focused discussions with the EU to address specific concerns, seek clarifications, and work towards solutions that align with India’s interests.
By adopting a pragmatic and diplomatic strategy, India can navigate the challenges posed by the proposed Carbon Border Tax, ensuring that its unique circumstances and developmental needs are taken into account during negotiations.
LONG TERM- LOW EMISSION DEVELOPMENT STRATEGIES
India Unveils Long-Term Low Emission Development (LT-LED) Strategy at COP in Sharm El-Sheikh
Announcement:
During the ongoing United Nations Conference of Parties (COP) in Sharm el-Sheikh, Egypt, India has declared its comprehensive plan to shift towards a “low emissions” trajectory.
Understanding LT-LED Strategy:
The LT-LEDs, qualitative in nature, are a mandatory component originating from the 2015 Paris Agreement. In essence, countries outline how they intend to transition their economies beyond achieving short-term Nationally Determined Contributions (NDC) targets. This strategic approach signifies their commitment to the broader climate goal of reducing emissions by 45% by 2030 and achieving net-zero status around 2050.
FAQs – Carbon Border Tax
Q1: What is the recent development related to Carbon Border Taxes?
A1: A coalition of nations, including India, collectively opposed the Carbon Border Taxes proposed by the European Union (EU) during the 27th Conference of Parties (COP) in Sharm El Sheikh, Egypt.
Q2: What is a Carbon Border Tax?
A2: A Carbon Border Tax is a levy imposed on imports based on the carbon emissions associated with the production of the imported goods. It serves as a mechanism to price carbon, discouraging emissions and influencing both production processes and exports.
Q3: How does it differ from a national carbon tax?
A3: Unlike a national carbon tax, which is imposed on companies within a country burning fossil fuels, a Carbon Border Tax extends its reach to imports, considering the carbon emissions associated with the production of the imported goods.
Q4: What is the goal of the European Commission’s European Green Deal in relation to Carbon Border Tax?
A4: The Carbon Border Tax aligns with the European Commission’s European Green Deal, which aims to make Europe the first climate-neutral continent by 2050.
Q5: What is the EU’s target for carbon emissions reduction, and why is it considering a Carbon Border Tax?
A5: The EU aims to cut carbon emissions by at least 55% by 2030 (compared to 1990 levels). The Carbon Border Tax is intended to address rising emissions from imports, constituting 20% of the EU’s CO2 emissions, and encourage global emission reduction efforts.
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