Recent progress in the India-EU alliance opens up prospects of a customized partnership and mutual growth between the two as the EU is progressing fairly in Carbon management.
GS Paper 2: International Relations
- India and its neighborhood – International relations
- Bilateral, regional and global groupings and agreements involving India and/or affecting the Indian interests
GS Paper 3: Environment
While talking about the worldwide carbon management action plans, illustrate the Carbon Border Adjustment Mechanism. Also comment on India’s plans to mitigate Carbon emission.
Dimensions of the article
- Global Carbon Management
- EU’s Extent to manage Carbon affairs
- India-EU cooperation for Carbon management
The Global Scenario
With carbon neutrality as the byword for a sustainable society, a slew of countries, including Norway, Sweden, the United Kingdom, France, Spain, Japan, Germany, Canada, Costa Rica, the United States, Brazil, India, and China, have set net-zero targets for the middle and later half of the century.
The European Union is in the forefront of the net-zero pledge, aiming to be the world’s first carbon-neutral territory by 2050. In July of last year, it released the ‘European Union Green Deal,’ which focuses on a new growth strategy aimed at transforming the EU society into a fair and prosperous one with a modern, resource-efficient, and competitive economy.
CBAM: carbon-pricing system
- To achieve carbon neutrality, the EU has set immediate targets and released the ‘Fit-for-55’ package, which communicates its 2030 climate targets.
- The policy plan includes a provision for the implementation of the Carbon Border Adjustment Mechanism (CBAM), a carbon-pricing scheme proposed for imports into the EU.
- The CBAM proposes charging the difference in carbon consumed in the manufacture of domestic and imported goods based on imported goods.
- Proposed as a supplement to the EU Emission Trading Scheme (EUETS), importers will only have to disclose emissions embedded in the production of goods during the transition phase of CBAM, which begins January 1, 2023, and will not be required to pay a financial penalty.
- The CBAM, on the other hand, will go into effect on January 1, 2026, with a gradual reduction of free EUETS allowance coverage of 10 percentage points per year and a complete phase-out by 2035.
- CBAM will first tax five CITE (Carbon Intensive and Trade Exposed) sectors, including iron and steel, aluminium, cement, fertilisers, and power. Eventually, all EUETS sectors will be placed under its purview.
What is Carbon Pricing
- Carbon pricing is a method of lowering carbon emissions (also known as greenhouse gas, or GHG, emissions) that employs market mechanisms to pass on the cost of emissions to emitters.
- The Kyoto Protocol is the first to address carbon pricing explicitly.
- Its overarching purpose is to discourage the use of carbon-emitting fossil fuels in order to conserve the environment, address the causes of climate change, and comply with national and international climate agreements.
- The “polluter pays” notion is an important part of carbon pricing.
- By putting a price on carbon, society can hold emitters accountable for the significant costs of increasing GHG emissions into the atmosphere; these costs include filthy air, rising temperatures, and a variety of other problems (threats to public health and to food and water supplies, increased risk of certain dangerous weather events).
- Carbon pricing can also provide financial incentives for polluters to reduce emissions.
- The advantages of carbon pricing are enormous. It is one of the most powerful policy instruments available to combat climate change.
- It has the ability to decarbonize the world’s economic activity by changing consumer, corporate, and investment behaviour, while also releasing technical innovation and producing revenue that may be put to productive use.
- In short, well-designed carbon prices provide three benefits: they protect the environment, stimulate investment in clean technology, and generate cash.
Different types of Carbon Pricing
- Emissions trading system: This mechanism allows emitters to trade emission units in order to satisfy their emission targets. Either the emitter can conduct internal abatement measures or purchase emission units on the carbon market.
- Carbon tax: The mechanism establishes an explicit tax rate on GHG emissions.
- Offset mechanism: The protocol predetermines project GHG emission reductions. The emission certificates can then be offered to emitters who were unable to achieve the emission standards.
- Cap-and-trade and baseline-and-credit ETSs are the two primary forms of ETSs:
- Cap-and-trade systems: In this approach, an emission quota is set, and emission allowances are distributed through auctions for the quantity of emissions equal to the cap.
- Baseline-and-credit systems: These systems establish a baseline emission level and then grant credits to entities who reduce their emissions below that level. These credits can be sold to other companies that emit more than their baseline levels.
- RBCF: Result Based Climate Finance is a tool that makes payments based on preset results related to climate change management.
- Internal carbon pricing: An entity that an entity utilises internally to steer its decision-making process in connection to the impacts, risks, and opportunities of climate change.
The Intention Behind CABM
- According to the EU, CBAM is meant to prevent carbon leakage, level the playing field for EU companies, and encourage producers in other countries to embrace cleaner technologies.
- However, various debates have erupted around CBAM.
- Developing countries have expressed worry about the legitimacy of CBAM, pointing out that it violates World Trade Organization (WTO) and United Nations Framework Convention on Climate Change (UNFCCC) regulations, and they are concerned that it will increase protectionism.
- Several examples of conflict between domestic restrictive legislation citing environmental concerns and trade openness may be found in history, such as the Shrimp-Turtle Case and the Air Transport Association of America versus Energy Secretary Case for Energy and Climate Change.
- Environmental rules have been upheld in numerous cases, demonstrating that the current argument is a continuation of pre-existing issues and that, in the past, environmental concerns have surpassed trade concerns.
The Roar over Revenue Collected
- Developing countries also highlight the utilisation of CBAM revenue.
- According to the EU, CBAM earnings would be incorporated into the EU’s budget, the Next Generation EU, a recent effort initiated to provide economic assistance to EU member nations affected by the COVID-19 pandemic.
- Nations opposed to the proposed revenue usage method argue that if CBAM is implemented, the revenue generated should be utilised to promote cleaner technology adoption in developing countries.
India And EU
- India and the EU have a positive commercial relationship.
- India is the EU’s third largest trading partner, whereas the EU is India’s 11th largest commercial partner.
- In 2019-20, India-EU trade in goods stood for 63.8 billion (11.1 percent of overall Indian trade), whereas 1.9 percent of total EU trade in goods came to India in 2020. The EU accounts for around 14 percent of India’s total exports.
- Both parties have recently taken greater initiative to strengthen their connection with one another.
- The long-stalled India-EU Free Trade Agreement (FTA) talks have resumed and are slated to take place in June.
- The deadline for completing the Free Trade Agreement has been set for 2023-24.
- Both India and the EU are committed to combating climate change, and recent success in the India-EU alliance opens the door to a tailored collaboration and mutual growth.
- Rather than imposing a tariff on exports to the EU, as envisaged in CBAM, India and the EU should improve cooperation by investing in cleaner and greener technology in India and assisting in the cleaning up of production in India.
- Such a collaboration will ensure that both India and the EU achieve their goals of economic growth and sustainability, creating a win-win situation for both parties.