- A multi pronged counter is warranted to tackle the EU’s carbon tax plans.
What’s in the news ?
- The European Union (EU) proposes to introduce a framework for levying a carbon tax on imports of the products.
- The products that rely on non-green or sub-optimally sustainable processes and where carbon emissions are deemed to have not been adequately priced.
- This procedure will be called Carbon Border Adjustment Mechanism (CBAM).
- The EU argues that this CBAM will ensure its climate objectives are not undermined by carbon-intensive imports and spur cleaner production in the rest of the world.
Impact on Indian exports –
- A significant threat to some of India’s biggest exports to the trading bloc, including iron ore and steel.
- It levies carbon taxes estimated to range from 19.8% to 52.7%.
- Engineering products, the largest export growth driver in recent years, would be impacted too.
- The EU argues that the new carbon tax norms are compatible with WTO norms, but India is looking to challenge it.
What exactly is a Carbon tax ?
- A carbon tax is a tax levied on the carbon emissions required to produce goods and services.
- Carbon taxes are intended to make visible the “hidden” social cost of carbon emissions which are otherwise felt only in indirect ways like more severe weather events.
- It is designed to reduce carbon dioxide emissions by increasing prices of the fossil fuels that emit them when burned.
- It works as a sort of ‘Pollution Tax’.
- A carbon tax would also increase the costs of gasoline and electricity, therefore giving consumers a reason to shift to clean energy sources.