[TOPIC CLASSIFICATION]

Topic Type: Environmental Economics PYQ Frequency: Medium Stage: Prelims and Mains GS Paper: GS 3

[EXAMINER REASONING]

1. Trap: Thinking CBAM is just a tax. It is a carbon price adjustment.
2. Confused Point: Difference between CBAM and a traditional tariff.
3. Anchor: The EU Green Deal.
4. CA Hook: India's challenge to CBAM at the WTO.
5. Mains Hinge: Impact on the competitiveness of Indian steel and aluminum.

Core Concept

The Carbon Border Adjustment Mechanism (CBAM) is a tool used by the EU to put a fair price on the carbon emitted during the production of carbon intensive goods entering the EU. It ensures that imported goods are treated the same as EU produced goods, preventing carbon leakage.

Carbon leakage occurs when companies move production to countries with less stringent climate policies. CBAM forces exporters to buy carbon certificates equivalent to the carbon price that would have been paid if the goods were produced under EU rules.

Key Facts

• Region: European Union (EU)
• Sectors: Steel, Cement, Fertilizers, Aluminum, Electricity, Hydrogen
• Mechanism: Carbon certificates
• Objective: Prevent carbon leakage
• Legal Body: WTO (under scrutiny)

Previous Year Questions

Statement Elimination Guide

• Correct: CBAM targets specific carbon intensive sectors.
• False: CBAM applies to all imports from non EU countries. (Incorrect. It starts with specific heavy industries).
• Trap: Saying CBAM is an agreement between nations. (Incorrect. It is a unilateral EU policy).