What is the Carbon Border Adjustment Mechanism (CBAM)?

About Carbon Border Adjustment Mechanism (CBAM):

• What is it? It is a proposed European Union (EU) tariff on carbon intensive products.
• Purpose: To put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU , and to encourage cleaner industrial production in non-EU countries.
• The CBAM will ensure the carbon price of imports is equivalent to the carbon price of domestic production.
• 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.
• Companies in countries with a domestic carbon pricing regime equivalent to the EU’s will be able to export to the EU without buying CBAM certificates.
• CBAM will initially cover several specific products in some of the most carbon-intensive sectors at risk of "carbon leakage": iron and steel (including some downstream products such as nuts and bolts), cement, fertilizers, aluminium, electricity and hydrogen.

 

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Q1) What is Carbon tax?  

A carbon tax is a type of penalty that businesses must pay for excessive greenhouse gas emissions. The tax is usually levied per ton of greenhouse gas emissions emitted.

Source: EU carbon tax: Govt to carry out sectoral analysis to see how CBAM will affect Indian industry