Carbon Border Adjustment Mechanism

Q. Carbon Border Adjustment Mechanism is related to
a)    European Union
b)    India
c)    USA
d)    China

Why in News?
From 1 January 2026, the European Union will begin collecting a carbon tax on each consignment of steel, aluminium, cement, fertilisers, hydrogen, and electricity imported into the EU.
The Carbon Border Adjustment Mechanism (CBAM) is a regulatory instrument introduced by the European Union to tax emission-intensive industries. It applies to sectors such as steel, aluminium, cement, electricity, and fertilisers.
Under CBAM, imports of products like steel and aluminium will be taxed based on the volume of carbon emissions generated during their production. The mechanism aims to address the problem of carbon leakage, where production shifts to countries with less stringent environmental regulations. At present, European producers are subjected to Emission trading System, aligned with EU’s Fit for 55 package to reduce its net greenhouse gas emissions by at least 55% by 2030. In this regard, CBAM intends to even the field by levying carbon tax on high-emission imports.
Relevance to India
India is the second-largest exporter of steel and aluminium to the EU after China. Indian manufacturers largely rely on carbon-intensive methods of steel production. With the implementation of CBAM, Indian steel exports to the EU are likely to become more expensive, reducing their price competitiveness and potentially leading to trade losses.
 Actively promoting decarbonisation efforts, linking emission-reduction targets with the Production Linked Incentive (PLI) scheme, and facilitating the transfer and adoption of clean energy technologies in India can help mitigate the impact of CBAM.