CBAM is a trade barrier. Government must lend exporters a hand

The year has started on a negative note for exporters in India as the European Union has extended its Carbon Border Adjustment Mechanism (CBAM) to imports into the EU. The CBAM is a tax on companies, based on the level of carbon emissions generated during production. Companies that use cleaner and more efficient methods find themselves more favourably placed while those that don’t do so get penalised. Starting 2026, Indian exporters selling steel and aluminium to the EU will come under the scope of the CBAM, and experts suggest that this will result in a hefty tax liability — between 16 per cent and 22 per cent — because Indian firms use processes that emit more carbon. For Indian exporters of steel and aluminium, the EU accounts for 22 per cent of overall exports. The net result will be that either firms take a hit on their profit margins matching the tax liability or risk losing out to exporters from other countries.

On the face of it, the move is designed to push the world towards cleaner production systems that cut down emissions and slow down climate change. While that is a worthy goal, penalties like the CBAM put an inordinate and unfair onus on developing countries such as India to reduce emissions. The CBAM essentially applies developed (read rich) country levels of carbon taxation on poorer countries. In fact, many have argued that the main purpose of the CBAM is not to achieve a reduction in carbon emissions but to work as a trade barrier. Studies by independent organisations such as the United Nations Conference on Trade and Development estimate that the EU’s carbon tax would reduce global carbon emissions by merely 0.1 per cent even as it substantially impedes the exports of developing countries. Notably, when it comes to trade, steel and aluminium have become two of the most protected sectors across countries.

Overall Analysis

The editorial critiques the European Union’s decision to extend its Carbon Border Adjustment Mechanism (CBAM) to imports, arguing that while the policy is framed as an environmental measure, it functions in practice as a trade barrier for developing countries like India. The piece begins by establishing the immediate economic impact on Indian exporters, especially in steel and aluminium, using concrete data on export shares and projected tax liabilities to underline the seriousness of the issue. This factual opening lends credibility and urgency to the argument.

The author then explains the working of the CBAM in clear, accessible language, contrasting firms that use cleaner production methods with those that rely on more carbon-intensive processes. This contrast highlights the uneven playing field Indian exporters face, given structural and technological constraints. The language remains analytical but subtly critical, particularly when discussing the dilemma exporters face: absorb losses or lose competitiveness.

In the second paragraph, the editorial shifts from explanation to evaluation. While acknowledging climate change mitigation as a legitimate and “worthy goal,” the author challenges the fairness of imposing developed-country carbon standards on developing economies. Phrases such as “inordinate and unfair onus” reflect a clear normative stance. By citing UNCTAD studies, the piece strengthens its argument that the environmental gains from CBAM are minimal compared to the economic damage inflicted on developing nations. The suggestion that CBAM’s true purpose may be protectionist rather than environmental marks a decisive sharpening of tone.

Overall, the editorial combines economic reasoning, ethical argument, and empirical evidence to contend that CBAM disproportionately harms Indian exporters and undermines the principle of equitable climate responsibility. Implicitly, it calls on the Indian government to support exporters through policy measures, negotiation, or financial assistance.

Important Vocabulary (5)

1. Mechanism – a system or process designed to achieve a particular result.
2. Hefty – large or substantial in amount.
3. Inordinate – excessively large or unreasonable.
4. Onus – a burden or responsibility.
5. Impede – to obstruct or slow down progress.

Conclusion & Tone

The editorial concludes that the CBAM, though presented as a climate policy, effectively acts as a protectionist trade barrier that unfairly penalises developing countries. It urges the government to actively assist Indian exporters in coping with the economic fallout and to challenge the inequities embedded in such measures.

Tone: Analytical, critical, and policy-oriented — balancing acknowledgment of environmental concerns with a firm critique of trade unfairness.