A new report by the Centre for Science and Environment (CSE) has sparked a debate over the European Union’s Carbon Border Adjustment Mechanism (CBAM), highlighting concerns that it unfairly burdens developing countries with the cost of decarbonization. The report, released during a CSE-organized webinar on July 18, 2024, in New Delhi, argues that CBAM and similar policies act as roadblocks to development in the Global South.
CBAM, introduced by the EU in 2022, imposes a tax on imported goods like iron and steel, cement, aluminium, fertilizers, electricity, and hydrogen based on their greenhouse gas emissions intensity during production. The aim is to protect EU firms from competitors in countries with less stringent carbon pricing policies and to encourage trading partners to decarbonize their manufacturing industries.
CSE criticizes EU’s carbon border
Sunita Narain, Director General of CSE, emphasized the intricate relationship between trade and climate, stating, “Trade and climate are intrinsically linked, and global trade rules need to be overhauled for a climate-risked world, but not at the cost of climate justice. Measures like CBAM are unilateral and shift the transition burden to the developing world.”
Narain expressed concern about the potential economic impact on developing nations, adding, “This, when developed countries themselves have not reduced their emissions sufficiently and continue to occupy carbon space. What is of particular concern is that such measures may further hurt economies of countries of the South, restricting their abilities to decarbonise.”
The report argues that CBAM disregards the historical industrialization and development context. Avantika Goswami, Programme Manager for Climate Change at CSE, explained, “Developed nations historically relied on fossil fuels for economic growth. Today, despite the capacity to reduce domestic emissions and low-carbon manufacturing technologies, they continue emitting and outsourcing high-emission production to developing countries.”
Goswami criticized the mechanism for not accounting for past promises made by wealthy nations, stating, “It disregards the prior failure of wealthy countries to ensure that green technologies are accessible to developing countries, through knowledge or financing.”
CBAM contradicts CBDR principle
The CSE report argues that CBAM violates the principle of common but differentiated responsibilities (CBDR) in the Paris Agreement and the UNFCCC, which acknowledges that all countries share the responsibility to address climate change, but have different capabilities and historical contributions
Claudia Contreras, Economic Affairs Officer at UNCTAD, stressed the importance of aligning policies with international agreements and considering affected countries’ capacities. She said, “All policies should align with the Paris Agreement, considering other countries’ capacity to comply.”
Contreras highlighted the potential negative impact on developing economies, adding, “Trade is an important revenue source for some countries, and the negative impact of these policies may leave them with fewer resources to fund decarbonisation efforts. Therefore, it’s important that implementing countries support those affected.”
he economic implications of CBAM for developing nations are significant. Faten Aggad, Executive Director of the African Future Policies Hub, revealed that the economic impact on Africa would result in a US $25 billion loss per year. To put it in perspective, the entire continent receives just under US $30 billion per annum in climate finance, which is far below what is required for a solid response to the climate challenge.
Aggad criticized the mechanism as an attempt to shift the burden of decarbonization without adequate support, stating, “Despite Africa’s historical contribution being under 4% of global GHG emissions, CBAM comes across as an attempt by the EU to shift the burden without providing the necessary financial or technical support.”
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CBAM taxes India’s EU exports
For India, the impact of CBAM could be substantial. Trishant Dev, Programme Officer for Climate Change at CSE, provided an estimate: “At a rate of €100 (or US $106) per tonne of carbon dioxide equivalent, CBAM would impose an average tax burden of 25% annually on CBAM-covered goods exported to the EU by India. This is a cost we shouldn’t have to bear.”
The CSE report recommends that the EU allocate CBAM revenue to aid decarbonization in developing countries and increase climate finance flows. It also proposes exempting the most vulnerable countries from tax burdens.
For developing countries, the report recommends creating sectoral mitigation plans, considering domestic taxation of goods at the point of export to fund decarbonization efforts, and exploring diversified production processes for different markets. Goswami explained, “Reserving less carbon-intensive production for environmentally-conscious markets can help industries minimize CBAM-like measures’ costs and decarbonize at a fairer pace.”
The report introduces the concept of a “historical polluter tax” that developing countries could impose on trade partners responsible for a significant share of cumulative historical CO2 emissions. This approach aims to address the burden-sharing aspect of climate policy in trade and promote climate justice.
Dev emphasized the need to minimize the impacts of policies like CBAM on the Global South, stating, “The impacts of policies like CBAM must be minimized so that the developmental process in the Global South isn’t hindered, and can be achieved through low-carbon, climate-resilient pathways with financing and technology support from developed countries.”
