Daily Current Affairs : 7-November-2023

The ongoing transition phase of the European Union’s Carbon Border Adjustment Mechanism (CBAM) has put India in the spotlight, as the country contemplates accepting the EU’s default values for calculating carbon emissions during the production of certain polluting items, particularly steel and aluminium, intended for export to the EU region.

Transition Period Challenges:
  • The CBAM transition period commenced on October 1, 2023.
  • Importers are required to report embedded carbon content quarterly until the end of 2025.
  • The carbon tax regime becomes effective from January 2026.
  • India lacks a carbon verification and accreditation system, posing challenges for independent carbon emission determination.
Short-Term Solutions:
  • In the absence of a fully developed system, exporters are advised to rely on CBAM default values for reporting purposes.
  • Lack of compliance may lead to additional levies, affecting the Indian steel and aluminium sectors, potentially up to 20-35%.
EU’s Future Adjustments:
  • The EU plans to develop secondary legislation by Q4 2024 to modify CBAM.
  • Adjustments will include accreditation of verifiers, rules on electricity, and anti-circumvention measures.
  • These changes aim to account for the effective carbon price paid abroad.
Understanding CBAM:
  • CBAM is an EU regulation addressing carbon emissions during the production of carbon-intensive items in non-EU countries.
  • It aims to level the playing field for EU producers facing a carbon price under the EU Emission Trading System.
  • CBAM acts as a carbon tariff on products like cement and electricity imported into the EU.
Significance of CBAM:
  • Implementation of CBAM is a crucial step for the EU to address carbon leakage.
  • It ensures fair competition for European businesses against cheaper goods from countries like China and India.
  • The mechanism empowers the EU to impose levies on imports not meeting its environmental standards.
Important Points:
  • Transition Period Challenges:
    • CBAM transition began on October 1, 2023.
    • Importers report embedded carbon content quarterly until end of 2025.
    • Carbon tax regime effective from January 2026.
    • India lacks a carbon verification system, hindering independent emission determination.
  • Short-Term Solutions:
    • Exporters advised to use CBAM default values for reporting.
    • Non-compliance may lead to additional levies, impacting Indian steel and aluminium sectors (up to 20-35%).
  • EU’s Future Adjustments:
    • EU plans secondary legislation by Q4 2024 to modify CBAM.
    • Adjustments include verifier accreditation, electricity rules, and anti-circumvention measures.
    • Aim to account for effective carbon price paid abroad.
  • Understanding CBAM:
    • EU regulation addressing carbon emissions in non-EU production.
    • Levels playing field for EU producers facing carbon prices under the EU Emission Trading System.
    • Acts as a carbon tariff on imports like cement and electricity.
  • Significance of CBAM:
    • Addresses carbon leakage and ensures fair competition for EU businesses.
    • Empowers the EU to impose levies on imports not meeting environmental standards.
    • Targets cheaper goods from countries like China and India.
Why In News

During the ongoing transition phase of the EU’s Carbon Border Adjustment Mechanism (CBAM), India is likely to accept the bloc’s default values for calculating carbon emitted during production of identified polluting items, including steel and aluminium, in the country, for export to the region. This collaborative approach underscores the shared commitment to environmental sustainability between India and the EU.

MCQs about CBAM Impact on India

  1. When does the carbon tax regime under CBAM become effective?
    A. October 1, 2023
    B. End of 2025
    C. January 2026
    D. Q4 2024
    Correct Answer: C. January 2026
    Explanation: The carbon tax regime under CBAM becomes effective from January 2026.
  2. Why might Indian exporters rely on CBAM default values in the short term?
    A. To avoid carbon taxes altogether
    B. Due to the absence of a carbon verification system
    C. As a strategy to gain a competitive edge
    D. To challenge the EU’s environmental standards
    Correct Answer: B. Due to the absence of a carbon verification system
    Explanation: Indian exporters are advised to use CBAM default values for reporting due to the lack of a comprehensive carbon verification system.
  3. What adjustments is the EU planning to make to CBAM by Q4 2024?
    A. Imposing higher carbon taxes
    B. Introducing new carbon-intensive items
    C. Accreditation of verifiers, electricity rules, and anti-circumvention measures
    D. Excluding certain countries from CBAM regulations
    Correct Answer: C. Accreditation of verifiers, electricity rules, and anti-circumvention measures
    Explanation: The EU plans to make adjustments, including verifier accreditation, electricity rules, and anti-circumvention measures, to enhance the effectiveness of CBAM by Q4 2024.

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