What is CBAM?
- The Carbon Border Adjustment Mechanism (CBAM) is a climate policy of the European Union (EU) designed to put a carbon price on certain carbon-intensive goods imported into the EU.
Objective
- It Aims to prevent carbon leakage.
- Seeks to ensure that imported goods face a carbon cost comparable to goods produced within the EU.
What is Carbon Leakage?
- Carbon leakage occurs when industries shift production from countries with strict climate policies to countries with weaker environmental regulations to avoid carbon costs.
| Strict carbon policy → Higher production cost → Production shifts abroad → Emissions shift abroad → Carbon leakage |
CBAM: Key Sectors
| Sector | Examples |
| Cement | Cement and clinker |
| Iron & Steel | Iron, steel and selected products |
| Aluminium | Aluminium products |
| Fertilisers | Selected fertiliser products |
| Electricity | Imported electricity |
| Hydrogen | Hydrogen |
Why is CBAM Important for India?
- The EU is an important market for Indian exports.
- Indian sectors such as iron & steel and aluminium can face higher compliance and carbon-related costs.
- It may influence India’s export competitiveness in carbon-intensive sectors.
- It encourages Indian industries to adopt cleaner technologies, renewable energy and better emissions accounting.
CBAM vs Carbon Tax
- Carbon Tax: Domestic policy that directly imposes a price/tax on carbon emissions.
- CBAM: Applies a carbon cost at the border to specified imported goods based on their embedded emissions.
Conclusion
CBAM represents the growing intersection of climate policy and international trade. For India, it creates both a challenge for carbon-intensive exports and an incentive to accelerate decarbonisation, clean technology and domestic carbon markets.
| This concept has been mentioned in the following article: BRICS Opposes EU’s Carbon Border Adjustment Mechanism (CBAM) |