European Union corners India, developing world over carbon tax at COP29

The tax, or CBAM, is to be imposed by EU in 2026 on products whose manufacturing processes do not follow certain emission standards

The European Union (EU) may have pushed India and other developing countries into a corner over opposition to the proposed carbon border adjustment mechanism (CBAM) by moving the discussion on the carbon tax to a separate committee at COP29 — 29th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) — instead of accommodating it on the core agenda, as demanded by countries like India and China. The new forum will not only discuss the CBAM but also the broader issue of domestic subsidies given by developing countries, EU officials said.

 

“The UNFCCC is not the right forum to discuss the consistency of climate policies with trade disciplines. That's the WTO (World Trade Organisation),” said Jacob Werksman, a key negotiator for the EU and principal adviser to the Directorate General for Climate Action in the European Commission, to a question posed by this reporter in Baku, Azerbaijan, on the sidelines of COP29. “There's no space within the UNFCCC to challenge or to discipline or to assess the policies of any particular country,” he added. Werksman admitted that CBAM was a concern and that there was a proposal that it would be included on the COP29 agenda as something framed as unilateral measures, but “we didn't include it”.

 

The US and other western powers, including Australia, were earlier opposed to CBAM but they have come around because they are also considering similar levies on imports, an Indian official said. After Donald Trump's win in the presidential elections, attention has shifted to his plans to impose across-the-board tariffs on US imports, justifying the EU's CBAM tax, the official said.

 

Werksman said CBAM will be addressed in the Response Measures Forum — a committee on the implementation of response measures. “But again, that's in the spirit of a roundtable conversation where not just developed countries will defend the spillover effects of their climate policies, but also developing nations that heavily subsidize their industries, which has a spillover effect on other countries' competitiveness, will put forward their views,” Werksman said.

 

This puts the onus on countries like India and China to explain the nature of their subsidies on local businesses in case they question CBAM.

 

CBAM impacts many Asian exporters like China, India, Taiwan, and Vietnam, which supply goods and metals to Europe. Developing nations led by India and China had come up with a strategy to link CBAM — basically a tax to be imposed by the EU in 2026 on products whose manufacturing processes do not follow certain emission standards — to the core climate finance agenda, which is the focus of COP29, officials here said. But EU negotiators scuppered the plan on Day 1 of the12-day event, which ends on November 22.

 

United Nations Conference on Trade and Development (UNCTAD), the global trade body, is backing developing nations like India on CBAM. UNCTAD Secretary General Rebeca Grynspan told this reporter that CBAM was bad for developing countries like India and UNCTAD tried hard to persuade the EU to drop it. But the EU has continued with the policy. However, UNCTAD still managed to get the EU to delay the deforestation component, she said. Grynspan, who is from Costa Rica and is the first woman to occupy the top post, said that the EU’s logic of CBAM cleaning the air or reducing emissions is not totally applicable because the benefits to climate are minor compared to the problems it would cause to developing nations. It will eventually lead to divergence of trade, she added.

 

Finance Minister Nirmala Sitharaman last month termed the CBAM tax as “unilateral” and “arbitrary” and said it could hurt India’s industries. Sitharaman noted that the proposed Deforestation Act by the EU will cause a major disruption in the supply chain and not help countries like India that are spending heavily on transition costs.

 

Response Measures Forum is multilateral, it's cooperative, it's about sharing lessons and exchanging experiences. It's not a dispute-solving process, Werksman insisted.

 

The EU claims that CBAM is a tool to put a fair price on the carbon emitted during production of carbon-intensive goods that are entering the trade bloc. It may even be WTO-compliant if justified as a green tax. The CBAM is a proposed carbon tariff to be imposed on carbon-intensive products like steel, cement, and certain types of electricity imported into the EU. It will come into effect from January 1, 2026. During the trial period, which began on October 1, 2023, companies from seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium, and hydrocarbon products, have to share emissions data with the EU.