Carbon Border Adjustment Mechanism (CBAM) Overview

Carbon Border Adjustment Mechanism (CBAM) Overview

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Why in News

  • The European Union introduced the Carbon Border Adjustment Mechanism (CBAM) to change how global trade works.
  • This tool connects market entry directly to the carbon emissions hidden inside imported products.

Carbon Border Adjustment Mechanism (CBAM)

  • The Carbon Border Adjustment Mechanism (CBAM) is an import tax set by the European Union on carbon-intensive goods made outside the region using methods that release more carbon than EU rules permit.
  • It belongs to the “Fit for 55” package created by the European Union.
  • The main target is to cut greenhouse gas pollution by a minimum of 55% by 2030 when compared with 1990 levels.
  • The declared purpose is to stop “carbon leakage”, set a fair carbon price on incoming items, and push factories in non-EU nations to adopt cleaner manufacturing methods.
  • The rules cover carbon-intensive products like iron and steel, cement, fertiliser, aluminium, and electricity generation, and officials might add more items later.
  • European Union buyers must purchase CBAM certificates that match the EU Emissions Trading System (EU ETS) pricing.
  • This price matches the carbon expenses that would apply if those products faced local EU carbon rules.
  • If a non-EU manufacturer already paid a carbon fee back home, that sum gets subtracted from the total CBAM bill.
  • The European Union launched this system in 2023 using a trial period from 2023 to 2025, and it moved into the final active phase on 1 January 2026.
  • Nations like India, China, and other BRICS partners see CBAM as a one-sided, unfair trade barrier meant to protect local markets.
  • Developing countries worry this tax will damage their export power and break the rule of shared climate duties.
  • This policy helps wealthy nations with strict emission rules while harming developing economies, making it a major flashpoint in world trade talks.