As India Threatens Retaliation, European Commission Says Preventing Carbon Leakage Sole Aim Of CBAM

The European Commission clarified that the Carbon Border Adjustment Mechanism (CBAM), a tax the European Union plans to impose on energy-intensive goods from countries like India and China, is solely aimed at preventing carbon leakage. Carbon leakage refers to the situation where companies relocate production from a country with stringent climate policies to avoid environmental regulations.

European Commissioner Wopke Hoekstra made this statement at a press conference during the UN climate talks in Dubai, while India's Commerce and Industry Minister Piyush Goyal threatened retaliatory action at an event in New Delhi.

Hoekstra emphasised that CBAM's primary objective is to prevent carbon leakage, and it plays a crucial role in funding the EU's climate goals. He mentioned that achieving the EU's target of reducing emissions by 55 percent by 2030 without CBAM would not be feasible.

Peter Liese, a German politician and member of the European Parliament, reinforced the importance of CBAM for achieving emission reduction targets and cautioned against attempts to dismantle it, stating that doing so would have far-reaching consequences beyond its scope.

The Carbon Border Adjustment Mechanism is designed to set a fair price on the carbon emitted during the production of energy-intensive products, such as iron, steel, cement, fertilisers, and aluminium, entering the EU. It also encourages cleaner industrial production in non-EU countries. Companies meeting the EU's carbon emission standards are exempt from this mechanism.

The CBAM is scheduled to come into effect from January 1, 2026, with a trial period starting on October 1, 2023. During this trial period, companies from seven carbon-intensive sectors must share emissions data with the EU.

Concerns have been raised by the BASIC group of countries (Brazil, South Africa, India, and China) at COP28, stating that CBAM will harm livelihoods and economic growth. A recent study by the United Nations Conference on Trade and Development suggests that CBAM could significantly reduce carbon leakage.

According to a study by the Centre for Social and Economic Progress, Indian exporters of steel and aluminium could face losses of up to USD 2 billion due to border taxation in European countries. The focus on carbon taxes has sparked debate about whether it diverts resources from climate adaptation efforts to emissions reduction in resource-deficient countries.