Climate Change Negotiations – UNFCCC, COP, Other Conventions and Protocols

Carbon Border Adjustment Mechanism (CBAM): A Flawed Approach to Climate Finance


From UPSC perspective, the following things are important :

Prelims level: CBAM and Climate finance Mechanism

Mains level: Carbon Border Adjustment Mechanism, challenges, implementation and


Central Idea

  • The historical responsibility for climate change has primarily rested with advanced economies and their industrialization processes, while the poorer countries of the Global South have made negligible contributions. The Kyoto Protocol acknowledged the principle of “common but differentiated responsibilities,” and the Paris Agreement emphasized voluntary emission targets for countries while requiring wealthier nations to provide financial transfers to developing economies.

Insufficient Climate Finance and Empty Promises by Industrialized Countries

  • Inadequate Financial Transfers: Despite the commitment made under the Paris Agreement to transfer $100 billion annually to developing economies for climate change mitigation and adaptation, the actual financial transfers have been far from sufficient. In 2020, out of the $83 billion deposited into the climate finance fund, less than $25 billion was transferred as grants.
  • Limited Support for Developing Countries: The Global South, comprising poorer nations, has been disproportionately affected by climate change, despite contributing minimally to the problem. These countries often lack the necessary resources and infrastructure to address the adverse effects of climate change
  • Empty Promises: The track record of empty promises regarding the flow of funds to the Global South casts doubt on the credibility of commitments made by wealthier nations. The failure to deliver on financial pledges raises questions about the sincerity and commitment of industrialized countries in addressing climate change and supporting developing economies in their climate action initiatives.
  • Impact on Climate Change Mitigation: Insufficient climate finance directly affects global efforts to mitigate climate change. Developing countries require financial resources to invest in clean technologies, renewable energy infrastructure, and sustainable development practices.
  • Equity and Climate Justice Concerns: Insufficient climate finance exacerbates existing inequities and injustices. The burden of climate change impacts falls disproportionately on vulnerable communities in developing countries who have contributed the least to the problem.
  • Loss and Damage: In addition to mitigation and adaptation efforts, financial support is crucial for addressing loss and damage caused by climate change impacts. Loss and damage refer to the irreversible and long-term damages, including economic losses and the displacement of communities, resulting from climate change.


What is The Carbon Border Adjustment Mechanism (CBAM)?

  • The Carbon Border Adjustment Mechanism is a proposed policy measure aimed at addressing the issue of carbon-intensive production methods in other countries. It involves imposing tariffs on imports from countries that are seen as utilizing carbon-intensive practices in their production processes.

The Objectives of the CBAM

  • Reducing Emissions: One of the primary objectives of the CBAM is to contribute to the reduction of the European Union’s (EU) emissions. By imposing tariffs on carbon-intensive imports, the mechanism aims to incentivize foreign producers to adopt cleaner and more sustainable production methods.
  • Preserving Competitiveness: The CBAM seeks to prevent carbon leakage, which refers to situations where industries move their production to countries with less stringent environmental regulations to avoid higher costs associated with carbon pricing.
  • Encouraging Carbon Intensity Reduction: The CBAM aims to motivate targeted countries, particularly major exporters to the EU, to decrease the carbon intensity of their exports. By imposing tariffs on carbon-intensive goods, the mechanism creates an economic incentive for these countries to transition towards cleaner and more sustainable production practices.


Challenges and Legal Implications for Implementing CBAM

  • Measurement Challenges: One of the significant challenges of the CBAM lies in accurately measuring the carbon intensity of imported goods. Determining the exact carbon footprint of a product can be complex, especially when considering indirect emissions embodied in inputs or production processes.
  • Arbitrary Coverage and Product Selection: Deciding which products and sectors should be included in the CBAM’s coverage can be challenging. The mechanism’s effectiveness heavily depends on selecting the right products that have high carbon exposure and significant trade volumes. The process of determining coverage may involve some arbitrariness and requires careful consideration to avoid unintended consequences and trade distortions.
  • Compliance with WTO Rules: The CBAM raises legal implications in terms of compatibility with World Trade Organization (WTO) rules. The mechanism’s unilateral nature, aiming to impose tariffs based on the carbon intensity of production processes, can be seen as a potential violation of WTO principles, including non-discrimination and national treatment.
  • Protectionism Concerns: There is a risk that the CBAM could be used as a form of protectionism by imposing tariffs on imports to shield domestic industries from international competition. This can undermine the principles of free trade and create tensions among trading partners. Careful design and implementation of the CBAM are necessary to ensure it does not become a tool for protectionist trade practices.
  • Incomplete Global Coverage: The effectiveness of the CBAM could be limited if not implemented globally. As of now, only a few countries have mechanisms in place for pricing carbon. The absence of a comprehensive global approach to carbon pricing and emission reduction may result in uneven playing fields and limited impact on overall global emissions.
  • Equity Considerations: The CBAM may have equity implications, particularly for developing countries. While it aims to incentivize carbon intensity reduction, the burden of adjustment falls primarily on countries that may lack resources and capacity to adopt cleaner technologies or transition rapidly.

Way Forward

  • Strengthen Climate Finance: Industrialized countries must fulfill their commitments to provide adequate climate finance to developing nations. Increasing financial transfers and grants to support climate change mitigation and adaptation efforts in the Global South is crucial. This includes honoring the $100 billion annual target set under the Paris Agreement and exploring innovative financing mechanisms.
  • Enhance Global Cooperation: International collaboration is essential to address climate change comprehensively. Governments, organizations, and stakeholders need to foster dialogue, share best practices, and collaborate on climate initiatives. Multilateral platforms, such UNFCCC, can serve as forums for cooperation, knowledge exchange, and collective decision-making.
  • Develop Comprehensive Carbon Pricing Mechanisms: Implementing comprehensive and robust carbon pricing mechanisms can incentivize emission reductions and promote the transition to low-carbon economies. Governments should explore carbon pricing mechanisms at both domestic and international levels, considering factors such as fairness, effectiveness, and economic feasibility.
  • Support Technology Transfer and Capacity Building: Developing countries require support in adopting and implementing clean technologies and building their capacity to mitigate and adapt to climate change. Enhanced technology transfer, knowledge sharing, and capacity-building initiatives can empower nations to address climate challenges effectively.
  • Promote Equity and Climate Justice: Efforts to combat climate change must prioritize equity and climate justice. It is essential to ensure that the burden of mitigation and adaptation does not disproportionately fall on vulnerable communities and developing countries. Equity considerations should be integrated into policy frameworks, financing mechanisms, and decision-making processes.
  • Strengthen International Trade and Climate Governance: The relationship between international trade and climate change needs to be addressed coherently. Collaborative efforts should be made to reconcile trade rules and climate objectives. Strengthening the World Trade Organization (WTO) and exploring ways to integrate climate considerations into trade agreements can foster synergies and avoid conflicts between trade and climate policies.
  • Encourage Innovation and Research: Investing in research and innovation is vital to develop and scale up transformative technologies and solutions for climate change mitigation and adaptation. Governments, private sectors, and academia should collaborate to promote research and innovation in clean energy, sustainable agriculture, circular economy, and other climate-related fields.



  • While the CBAM attempts to address carbon-intensive production methods and climate finance, it falls short in several areas. The inadequacy of climate finance transfers to the Global South and the history of unfulfilled promises undermines the potential success of future financing initiatives. A more comprehensive and equitable approach is required to effectively combat climate change while ensuring the burden is shared responsibly among nations.

Also read:

Transforming Global Financing for Sustainable Development: A Call for Concrete Action


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