Context: Officials from India are discussing with EU to meet the requirements as the Climate Border Adjustment Mechanism is being operationalised by the EU from January 1, 2026.
About Climate Border Adjustment Mechanism
- CBAM is a regulation introduced by the European Union (EU) to put a 'fair' price on carbon emitted during the production of items identified as carbon-intensive from non-EU countries.
- This will be in the form of higher import levies which will be applicable from 1st January 2026.
- Items covered under the CBAM include cement, iron & steel, aluminum, fertilizers, electricity and hydrogen.
- EU importers of these goods will have to report on the volume of their imports and greenhouse gas emissions embedded during their production but without paying any financial adjustment at this stage.
- CBAM aims to fight carbon leakage which aims to equalize the price of carbon between domestic products and imports. This will ensure that EU's climate policies are not undermined by production relocating to the countries with less ambitious green standards or by replacement of EU products by more carbon-intensive imports.
Significance of CBAM
- CBAM will allow EU to meet its commitment of reaching net zero carbon dioxide emission by 2050.
- CBAM is to create a level playing field with EU companies which already account for their carbon emission through the bloc's Emission Trading System (ETS).
- CBAM will encourage global industry to embrace green and more sustainable technologies.