"US Probes EU Carbon Border Tax; India Could Gain"
CBAM
EU mechanism charging importers for carbon dioxide embedded in certain goods
Forward-MFN clause
a trade clause giving automatic access to concessions granted to other partners later
Global trade is moving away from cooperative, multilateral carbon rules toward unilateral, bilaterally-negotiated ones. Earlier carbon mechanisms, such as the Kyoto Protocol's Clean Development Mechanism, let rich countries fund emission cuts in developing countries and earn credits in return. The European Union's Carbon Border Adjustment Mechanism (CBAM) breaks from this model. Instead of buying credits abroad, the EU charges importers directly at its own border, based on the carbon dioxide embedded in the goods they bring in. CBAM covers six sectors: iron and steel, aluminium, cement, fertilisers, hydrogen and electricity.
India negotiated hard with the EU on CBAM while finalising its own trade agreement with the bloc. As a result, India secured a 'forward-Most Favoured Nation' (forward-MFN) clause, which means India automatically gets any future CBAM concession the EU grants to another trading partner, without separately negotiating for it. This matters because the EU had already promised the United States, in a joint statement last year, to consider "additional flexibilities" in CBAM to address US concerns about the burden on small businesses. The same shift from multilateral rule-making to bilateral deal-by-deal bargaining is visible in how countries are now managing climate-linked trade barriers: a trend worth noting is that even two large trading partners like the US and EU are now negotiating carbon-tax terms bilaterally rather than through a shared global framework, and India has used its own bilateral leverage to protect its interests within that same pattern.
Steel dominates India's exposure to CBAM. Indian steel is produced mostly through the blast furnace-basic oxygen furnace (BF-BOF) route, which is more carbon-intensive than the gas-based direct reduced iron (DRI) route or the scrap-based electric arc furnace (EAF) route, the least emission-intensive of the three. This makes Indian steel exports to the EU especially vulnerable to CBAM's carbon charge.
The US Trade Representative (USTR) has begun a formal investigation into the EU's expansion of CBAM, seeking public comments from American small businesses until early November. Such an investigation is often the first procedural step before a country considers retaliatory trade measures, so it signals rising US-EU trade friction over carbon rules, not an immediate tariff action.
Under CBAM, EU importers must declare the emissions embedded in covered goods. The EU calculates default emission values using country- and sector-level data, but adds a punitive mark-up to push companies toward submitting their own verified company-level data instead, which must be checked by an EU-accredited third party. …
What are the challenges before the Indian economy when the world is moving away from free trade and multilateralism to protectionism and bilateralism? How can these challenges be met?
Consider the following statements regarding the European Union's Carbon Border Adjustment Mechanism (CBAM):
1.It covers imports of iron and steel, aluminium, cement, fertilisers, hydrogen and electricity.
2.It requires EU importers to declare the carbon dioxide emissions embedded in covered goods.
Which of the statements given above is/are correct?
The 'forward-Most Favoured Nation (MFN)' clause on CBAM, as secured by India in its trade agreement with the European Union, allows India to:
Match the steelmaking route in List-I with its relative carbon emission intensity in List-II:
List-I
A.Blast furnace-basic oxygen furnace (BF-BOF)
B.Gas-based direct reduced iron (DRI)
C.Scrap-based electric arc furnace (EAF)
List-II
1.Lowest emission intensity
2.Intermediate emission intensity
3.Highest emission intensity
Select the correct answer using the code given below:
With reference to India's steel sector and CBAM exposure, consider the following statements:
1.Scrap currently constitutes less than one-fourth of India's steelmaking feedstock.
2.India's domestic scrap availability is estimated at roughly 25 Million Metric Tonnes annually.
Which of the statements given above is/are correct?
Want the full note, Prelims Facts & MCQ answers?
Create a free account — takes less than a minute.
Create free account