The CSE emphasized the importance of fair and equitable climate policies in global trade, urging developed nations to consider their historical responsibilities and support a just transition for developing economies.

The European Union’s proposed Carbon Border Adjustment Mechanism (CBAM) has come under severe criticism from civil society Asia for imposing what it deems an unjust burden on developing countries.

Delhi-based think tank, the Centre for Science and Environment (CSE), a Delhi-based think tank, argues that CBAM policies shift the responsibility of decarbonizing heavy industrial sectors onto the Global South, potentially impeding their economic growth.

Introduced in 2022, CBAM proposes taxing imports such as iron, steel, cement, aluminium, and fertilizers based on the carbon emissions generated during their production. This measure aims to create a level playing field for European companies facing stringent environmental regulations. However, according to experts at CSE, this could disproportionately affect developing nations that heavily rely on these industries for economic development.

During the transition phase from October 2023 to December 2025, exporters are expected to provide emissions reports to importing partners, detailing embedded emissions in goods and any carbon pricing applied by the exporting country. Starting January 2026, CBAM fully activates, mandating importers to purchase certificates based on the embedded emissions assessment aligned with the EU’s Emissions Trading Scheme (ETS), including any carbon price paid to exporting nations.

CBAM aims to mitigate policy discrepancies between the EU’s domestic industry and global counterparts, preventing carbon leakage and incentivizing partner nations to adopt ambitious emissions controls. While initial impacts on Asian markets are restrained, CBAM signals a significant shift in global emissions and trade dynamics.

Need for climate justice

Critics argue CBAM unfairly burdens middle- and low-income countries, undermining environmental gains. The EU’s Social Climate Fund aims to mitigate these effects, yet currently focuses solely on European entities.

Sunita Narain, Director General of CSE, stressed the need for climate justice in international trade policies, highlighting the disparity where developed nations, historically major greenhouse gas emitters, are transferring the financial burden of transitioning to cleaner technologies onto developing countries.

“Measures like CBAM unilaterally shift the burden of transition to the developing world, even as developed nations have not adequately reduced their own emissions and continue to occupy a large carbon footprint,” Narain remarked.

The release of the CSE report coincided with a webinar where experts including Claudia Contreras from UNCTAD, Faten Aggad of African Future Policies Hub, and Avantika Goswami and Trishant Dev from CSE discussed the implications of CBAM. They underscored that policies like CBAM should align with global agreements such as the Paris Agreement, which advocate for differentiated responsibilities among nations based on their historical emissions.

Goswami, Programme Manager for Climate Change at CSE, criticized CBAM as a violation of the principle of common but differentiated responsibilities enshrined in international climate accords. “CBAM attempts to shift decarbonization burdens to other countries without adequate financial or technical support, disadvantaging developing nations,” she stated.

She said that in 2022-23, India’s CBAM-covered exports to the EU constituted 9.91 per cent of its total EU-bound exports. Notably, 26 per cent of India’s aluminium and 28 per cent of its iron and steel exports were destined for the EU during this period, pivotal sectors in India’s export landscape, intensifying the CBAM’s impact.

These sectors accounted for about 25.7 per cent of India’s global CBAM-covered exports in 2022-23, underscoring their crucial role in the national economy. Notably absent from India’s EU exports are hydrogen and electricity. Overall, CBAM-covered goods represent approximately 1.64 per cent of India’s global goods exports.

Could significantly affect India

As the EU rolls out this new tax, developing regions like South Asia anticipate potential economic challenges, advocating for an equitable approach that respects the varied capacities and circumstances within the global trade framework.

The CSE emphasized the importance of fair and equitable climate policies in global trade, urging developed nations to consider their historical responsibilities and support a just transition for developing economies.

The CSE report proposed several recommendations to mitigate the adverse impacts of CBAM on developing countries. These include allocating revenue from CBAM to support low-carbon manufacturing in developing nations, increasing climate finance, and exempting vulnerable countries from CBAM taxes. The report also suggested strategies such as implementing sectoral mitigation plans, introducing domestic carbon taxes on exports, and exploring a ‘historical polluter tax’ on developed countries to fund their own decarbonization efforts.

Trishant Dev, Programme Officer at CSE, highlighted that CBAM could significantly affect India, where CBAM-covered goods constituted a substantial portion of exports to the EU in recent years. He noted that sectors like aluminium and iron and steel would bear the brunt of this tax regime, potentially impacting India’s export competitiveness.

The report further recommended that countries like India institute their own carbon taxes on CBAM-covered exports to pre-empt additional costs imposed by European tariffs. Such measures, according to CSE, would empower India to manage its decarbonization efforts effectively and support industries transitioning to sustainable practices.