About CBAM

• • Carbon Border Adjustment Mechanism is the European Union’s tool to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the European Union (EU), and to encourage cleaner industrial production in non-EU countries. 
  • Currently, the CBAM applies to iron and steel, cement, fertilizers, aluminum, electricity, and hydrogen. The scope may expand to include more products in the future.
  • CBAM allows industries in Europe to remain competitive while continuing to maintain high environmental standards and prevents carbon leakage. 

• Carbon leakage refers to the situation where a company relocates its production to a country with less stringent environmental regulations to avoid stricter regulations in its home country.

Challenges faced by developing countries due to CBAM

• Although CABM contributes to a reduction in global emissions, it hurts the export competitiveness of developing countries such as China and India.
• It is argued that CBAM overlooks the “differentiation” embedded in the global climate architecture that allows developing countries to be treated differently than the developed nations.
• CBAM could provide a competitive edge to developed countries with similar emissions standards to the EU, as their products would be exempt from the carbon tax.  This could be disadvantageous to industries in developing countries due to less stricter regulations in emissions.

Why in News ?

• Developing countries like India and China have highlighted that Trade restrictions on grounds of promoting climate objectives, such as CABM could result in greater protectionism and disruptions in global supply chains.