The government is reported to be mulling various strategies to deal with the European Union’s Carbon Border Adjustment Mechanism, or C-BAM. Here is what the government should do: present the EU with a Carbon Dioxide Removal Obligation (CDR-O) tax on imports from the economic bloc, with a provision for setting off C-BAM against CDR-O levies.
The EU sees itself as the global leader in fighting climate change. Its enterprises have to pay a carbon tax on the amount of carbon dioxide (or equivalent amounts of other greenhouse gases) they generate. This places EU companies at a competitive disadvantage when confronted with imports from countries that do not have a carbon tax.
The EU has devised C-BAM to neutralise this disadvantage. While it sounds confusingly like a character from The Flintstones, its underlying idea is simple. When someone in the EU imports goods in any of five emissions-intensive sectors from an economy without carbon pricing, the importer will have to buy C-BAM credits equivalent to the tax an EU producer would pay on the carbon content of that import.
C-BAM kicks off with the requirement, from October this year, that imports be accompanied with detailed accounting of their carbon content. From January 1, 2026, C-BAM credits will have to be added to the cost of imports. Indian industry is quite concerned, especially the emissions-intensive sectors of cement, iron and steel, aluminium, fertilisers and electricity. After ditching the idea of countering this at the World Trade Organisation, the government is now thinking of more creative ways to counter C-BAM. This is a welcome move.
A problem with the dominant discourse on climate action is that it disregards altogether the additional burden for corrective action on the rich world, which has contributed to the bulk of carbon dioxide released into the atmosphere since the start of the industrial revolution.
Britain cut down entire hardwood forests to make iron, before coal began to be used for the purpose. The Sixth Assessment Report of the Intergovernmental Panel on Climate Change says 58% of the post-1850, manmade global-warming emissions took place before 1990. Since developing countries began growing in earnest well afterwards, most of the emissions were from the rich world.
Carbon dioxide removal (CDR) is thus the most logical and equitable way of arresting and reversing climate change. Each rich country should carry out CDR equivalent to the emissions they injected into the atmosphere, apart from decreasing emissions in the present.
This focus has been altogether missing in the dominant climate discourse, and the thrust has instead been on reducing incremental emissions, including in the developing world, regardless of its potential to retard growth and the relatively low per-capita emissions in these regions.
It makes sense to calculate how much each developed economy should contribute to CDR, and the cost that the failure to remove carbon dioxide from the atmosphere imposes on the world. Imports from rich economies could be taxed to price in these negative externalities in the form of CDR-O levies. The EU may cry foul at such a unilateral move to bring in a much-needed climate corrective, but then C-BAM has been no less unilateral.
India could offer to deduct from the CDR-O levies the C-BAM credits required for Indian exports to the EU. This seems like a fair offer. If it is not accepted, we would be prepared to negotiate.