Just deserts: Why EU’s carbon tax is facing pushback
NEW DELHI : The European Union’s (EU’s) carbon tax—the Carbon Border Adjustment Mechanism (CBAM)—came into effect on 1 October, causing a wedge between developing and developed countries. Interestingly, it is facing resistance from even within Europe. Mint explains.
Poland and Germany are two countries that appear concerned. Poland is the most dependent on fossil fuel for its energy security in Europe, producing around 70% of its power from coal. In August, Poland challenged the legal basis for CBAM at the Court of Justice of the European Union.
The Polish government opposed the law on the grounds that it imposes a cost of energy transition on those who are “less well-off". Poland would receive the biggest share of the €17.5 billion EU transition fund but still feels that CBAM could widen social inequality and job losses. Similar concerns have been flagged by the developing world.
A recent report in Financial Times said CBAM could face risks after Germany, the EU’s largest economy, sought exemptions for its micro, small and medium enterprises (MSMEs). According to the World Trade Organization (WTO), imported and locally produced goods should be treated equally. Granting exemptions to German MSMEs could force the EU to extend similar sops to MSMEs in developing countries such as India and China, rendering CBAM less effective.
The majority of firms in the big export markets of the EU are small. India has also requested the bloc to make easy norms for its MSMEs. WTO says environmental measures such as CBAM would result in a 20-35% tax on some imports into the EU.
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