Relevance for UPSC: GS III (Economy, Environment, International Trade); Source: The Hindu, European Commission

Context

From January 2026, Indian exports of steel and aluminium to the European Union will attract additional costs under the Carbon Border Adjustment Mechanism, impacting competitiveness amid ongoing India–EU Free Trade Agreement talks.

What is the Carbon Border Adjustment Mechanism

It is a trade-linked climate policy that applies the European Union’s carbon pricing system to imports. Importers must pay a carbon cost equivalent to what European producers pay under the EU Emissions Trading System, based on actual product-level emissions.

Why It Matters for India

  • Carbon pricing gap: India has no economy-wide carbon tax
  • Export impact: Coal-based steel faces higher border charges
  • Compliance challenge: Requires verified emissions data, difficult for small firms

UPSC Value Box

  • Sectors covered: Steel, aluminium, cement, fertilisers, electricity
  • Key principle: Polluter Pays Principle applied to trade
  • Equity issue: Tension with Common but Differentiated Responsibilities
  • SDGs linked: SDG 13 (Climate Action), SDG 9 (Industry, Innovation)

Conclusion

Carbon Border Adjustment Mechanism signals a shift where carbon intensity becomes a trade currency. For India, the response lies in cleaner production, credible carbon accounting, and strategic trade negotiations.

Q. The primary objective of the Carbon Border Adjustment Mechanism is to:
A. Promote free trade
B. Prevent carbon leakage by equalising carbon costs
C. Replace emissions trading systems
D. Impose uniform climate taxes globally

Correct Answer: B

Share This Story, Choose Your Platform!

Recent Posts

Start Yours at Ajmal IAS – with Mentorship StrategyDisciplineClarityResults that Drives Success

Your dream deserves this moment — begin it here.