Carbon Border Adjustment Mechanism (CBAM):

Why in News ?

The European Union (EU) is planning an expansion of its Carbon Border Adjustment Mechanism (CBAM) and the move could increase carbon tax costs on Indian manufactured exports to Europe.

Carbon Border Adjustment Mechanism (CBAM):

What is CBAM?

• A carbon tax on imports imposed by the European Union.
• Targets goods produced in countries with weaker climate policies.
• Aim: Ensure fair carbon pricing between domestic and imported products.

Objective:

• Prevent Carbon Leakage (firms shifting to low-regulation countries).
• Protect EU industries under strict climate norms.
• Promote global climate accountability.

How it Works?

• Importers must buy CBAM certificates equal to emissions embedded in goods.
• Price linked to EU’s carbon market (ETS).
• If exporting country already taxes carbon → adjustment given.

Sectors Covered (Initial Phase):

• Iron & Steel
• Cement
• Aluminium
• Fertilizers
• Electricity
• Hydrogen

Timeline:

• 2023–2025 → Transition phase (reporting only).
• From 2026 → Full implementation (financial payments begin).