A new era in the battle against climate change globally is coming up, and the trade sector seems to be turning into one of the most important battlefields. The Carbon Border Adjustment Mechanism proposed by the European Union has faced harsh criticism from the BRICS nations as the policy may unfairly burden the economies of developing countries, already under pressure due to increasing climate finance demands. The basic premise behind this debate remains – who should bear the cost of transitioning to a low-carbon global economy?
The Carbon Border Adjustment Mechanism has been developed in response to "carbon leakage", when companies move their production to countries where climate regulations are weaker. Within the mechanism, the importers of certain products with high carbon emissions, being supplied to the European market, have to factor in the emissions caused during the production of those goods. Initially, the sectors involved include iron and steel, aluminium, cement, fertilizers, electricity and hydrogen. Whereas the EU sees CBAM as a climate protection policy, some BRICS nations see it as a disguised trade barrier.
BRICS countries especially those that are major emerging markets like India, China, Brazil and South Africa have expressed worries regarding CBAM being a challenge to the CBDR principle. The CBDR principle entails acknowledging the difference in the contribution of the developed and developing nations towards climate change, as well as the capacity of the nations to respond. The developing nations feel that there would be no need for them to incur the same financial and technological costs as the industrialized nations.
The problem becomes even more complex because the developing nations are already faced with immense financing needs for climate adaptation, mitigation, renewable energy, and resilient infrastructure. The problem is made even worse by the fact that due to climate change, the need for funding is rising at a time when most of the emerging nations are struggling with high borrowing costs and lack of fiscal space.
Moreover, there is a serious issue associated with climate finance and technologies. Many developing nations have requested their developed counterparts to give more financial assistance and provide cleaner technologies. With regard to BRICS nations, introducing carbon costs in international borders without offering enough help to producers of developing nations might cause an uneven transition. Some smaller producers may find it difficult to calculate their emissions and use clean technology.
On top of that, the debate raises the issue of climate change policy versus international trade. Emerging economies represented by BRICS nations are apprehensive that the implementation of such carbon costs would be used for protectionist means which will negatively affect their exporters. In case the compliance costs increase, industries of developing nations would suffer and lose the market in Europe.
CBAM is thus not just an issue of tariffs or accounting of carbon but rather is emblematic of the battle of the future economic structure of the global climate economy. As climate finance concerns become greater, the BRICS countries are pushing back for more environmental ambition to be met with financing and technology transfers.
Whether or not CBAM ends up being a model for international collaboration on climate change or a source of even further division among developed and developing economies is something that will play out over the next few years. The issue is now about ensuring that the burden is shared equally.
Team Yuva Aaveg-
Adarsh Tiwari
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