 "EU emissions tariff system must be fair to developing world: CEA")
The European Union's Carbon Border Adjustment Mechanism (CBAM) must not give developing countries a rough deal for ensuring economic activity in the developed world, said Chief Economic Advisor V Anantha Nageswaran on Thursday, referring to a system to impose CO2 emissions tariffs on imported steel, cement and other goods.
“If developing countries are insuring the lives and property of people and businesses in developed nations, what are they getting in return? What is the premium that developed nations are willing to pay for it? Surely, it cannot be CBAM,” said Nageswaran.
CBAM will from 2026 set a price on carbon emitted during the production of energy-intensive products that enter the European Union (EU). During the trial period that started on October 1, 2023 companies in seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium, and hydrocarbon products, have to share emissions data with the EU.
Nageswaran was speaking at a workshop on climate finance and the role of insurance in financing climate risk, organised by the Department of Economic Affairs and the Asian Development Bank.
While stressing that climate change has geopolitical risks, he said countries shifting from fossil fuels to renewable energy become vulnerable, especially when it comes to the supply of rare earths and critical minerals.
“Dependence on few sources of supply is a risk that needs to be insured. Is the insurance industry better prepared to finance that kind of risk, or is it something that can be done only through international collaborative arrangements?” he said.
Financial institutions need to protect themselves from the risk of stranded assets due to energy transition. “How to insure banks? They may need more capital if assets have to be written off… Contingency capital needs to be brought on.”
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Nageswaran highlighted the need to insure against wrong policies arising out of excessive fear of emissions in the developed world – something that would result in a loss of output and employment in developing nations.
“Insurance is a hedge against losses, and today even if we saw all emissions, there are going to be consequences arising out of historical emissions. They will be with us for several decades, and therefore developing countries will need to take action against them, and to do so, there will be a loss of output and employment”.
Nageswaran called for a global mechanism and commitments from developed countries to provide financial assistance or compensation. “Those are the kinds of insurance that have not come through in the last several years.”
Nageswaran also said that global warming is not all about "doom and gloom". "While there may be an increase in high-temperature-related deaths, there would also be a decline in cold-related deaths."
“Adaptation is the best form of insurance, and for that to occur, the policy framework must put as much focus on adaptation and resilience as only on emissions.”