Carbon Border Adjustment Tax

About Carbon Border Adjustment Tax:

• The European Union has proposed a policy — called the Carbon Border Adjustment Mechanism — to tax products such as cement and steel, that are extremely carbon intensive, with effect from 2026.
• BASIC, a group constituting Brazil, India, South Africa and China, and therefore large economies that are significantly dependent on coal, has reiterated their right to use fossil fuel in the interim during their countries’ eventual transformation to clean energy sources.

What is a carbon border adjustment tax?

• It is a duty on imports based on the amount of carbon emissions resulting from the production of the product in question. As a price on carbon, it discourages emissions. As a trade-related measure, it affects production and exports.
• There is the risk that it becomes a protectionist device, unduly shielding local industries from foreign competition in so-called ‘green protectionism’.
• If implemented as planned, EU importers will have to buy carbon certificates corresponding to the carbon price that would have been paid in the EU, if the goods had been produced locally.
• The price of the certificates would be calculated according to the auction prices in the EU carbon credit market. The amount of certificates required would be defined yearly by the quantity of goods and the embedded emissions in those goods imported into the EU.

Source : The Hindu

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