Why in News?
The 12th BRICS Environment Ministers’ Meeting, held under India’s chairship, opposed unilateral climate measures such as the European Union’s Carbon Border Adjustment Mechanism (CBAM).
BRICS argued that climate action must remain consistent with the principles of equity, Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC), while also taking into account the developmental priorities of developing countries.
The grouping also called for greater adaptation finance, including fulfilment of the COP30 commitment to triple adaptation finance by 2035.
The debate highlights an emerging trade–climate nexus, where climate mitigation, international competitiveness, trade policy, climate justice and development are increasingly interconnected.
What is the EU’s Carbon Border Adjustment Mechanism (CBAM)?
The Carbon Border Adjustment Mechanism is the European Union’s system of putting a carbon-related cost on imports of certain carbon-intensive goods entering the EU market.
It complements the EU’s Emissions Trading System (ETS) and aims to ensure that imported products face a carbon cost comparable to products manufactured within the EU.
Key Objectives of CBAM
1. Carbon pricing at the border
Importers of specified carbon-intensive products have to account for the emissions embedded in those products.
2. Initial coverage
CBAM covers sectors including: Iron and steel, Aluminium, Cement, Fertilisers, Hydrogen and Electricity.
3. Preventing carbon leakage
A major objective is to prevent industries from shifting production to countries with weaker climate regulations simply to avoid carbon costs. For example, an EU steel producer facing carbon costs could otherwise become less competitive compared to imported steel produced with higher emissions.
4. Encouraging global decarbonisation
CBAM creates an incentive for exporters to adopt cleaner production technologies so that they can remain competitive in the EU market.
5. Transforming trade policy
CBAM demonstrates how environmental standards are increasingly becoming an important component of international trade policy. The IMF has also identified carbon border measures as an emerging component of international climate policy and carbon-pricing architecture.
Why is BRICS Opposing CBAM?
BRICS’ opposition is not necessarily against climate action itself. Rather, the concern is about how climate action is designed and implemented in international trade.
1. Fear of Green Protectionism
Developing countries fear that climate standards could effectively become non-tariff barriers that protect industries in advanced economies.
For instance, carbon-intensive Indian steel could become less competitive in the European market because of additional carbon-related costs.
2. Developmental Asymmetry
Developing economies still require industrialisation, employment generation and affordable energy to reduce poverty. Applying similar carbon costs to Indian and European industries can overlook differences in:
a. Technological capabilities.
b. Capital availability.
c. Industrial development.
d. Energy systems.
e. Developmental priorities.
3. CBDR-RC Concerns
The principle of Common but Differentiated Responsibilities and Respective Capabilities recognises that countries have different historical contributions to climate change and different capacities to respond. Developing countries therefore argue that they should receive greater access to finance and technology before facing similar climate-related trade constraints.
4. Technology and Finance Deficit
Technologies such as: Green hydrogen, Carbon capture, Renewable energy and Low-carbon industrial production, require substantial investment. Developing countries argue that inadequate access to finance and technology remains a major constraint on their climate transition.
What is the impact of CBAM on India?
CBAM presents both significant risks and important opportunities for India.
A. Risks:
1. High Exposure of the Steel Sector
Around 90% of India’s CBAM-covered exports are associated with iron and steel.
This makes the steel industry particularly vulnerable to the mechanism.
2. Macroeconomic Impact
The Centre for Social and Economic Progress (CSEP) estimates that CBAM-exposed exports account for approximately 0.2% of India’s GDP.
While the overall macroeconomic impact may be limited, the effects can be highly concentrated in particular industries.
3. Export Competitiveness
An ICRIER assessment estimated that India's steel exports to the EU could decline by around 24% under its modelled scenario.
4. Compliance Costs
Emissions measurement, reporting and third-party verification can impose significant costs, particularly on Micro, Small and Medium Enterprises (MSMEs).
5. Employment Risks
Regions dependent on carbon-intensive industries could face adjustment costs as industries transition towards cleaner production.
B. Opportunities for India:
CBAM can also become a catalyst for India's green industrial transition.
1. Green Industrialisation
It can encourage investment in Green steel, Renewable energy, Green hydrogen and Low-carbon manufacturing.
2. Advantage for Cleaner Firms
A 2026 study in Nature Climate Change found that high-emission Indian steel firms experienced reductions in EU shipments and revenues during the CBAM reporting phase, while comparatively lower-emission firms proved more resilient. This indicates that decarbonisation could increasingly become a source of competitive advantage.
3. Technological Upgradation
CBAM can accelerate investment in:
a. Energy efficiency.
b. Cleaner production.
c. Low-carbon technologies.
d. Carbon management.
4. Long-Term Export Competitiveness
Early decarbonisation could help Indian companies retain access to markets where environmental standards are becoming increasingly important.
CBAM, WTO and Global Climate Governance
CBAM lies at the intersection of international trade law and global climate governance.
It raises questions concerning the compatibility of climate-linked trade measures with the principles of the World Trade Organization (WTO) and the UNFCCC.
Key WTO Principles
Relevant principles include:
a. Most-Favoured-Nation (MFN) treatment
b. National Treatment
c. GATT Article XX, which provides exceptions relating to certain environmental measures
The central concern is that climate measures should not become disguised protectionism or arbitrarily discriminate against developing countries.
The Carbon Leakage Dilemma
CBAM is designed partly to prevent carbon leakage. However, simply shifting production from one country to another does not necessarily reduce global emissions.
For example, European demand may shift from relatively carbon-intensive Indian steel to another non-EU supplier without substantially reducing global steel emissions.
Risk of Fragmentation
If individual countries or groups of countries increasingly introduce unilateral carbon-related trade measures, other countries could respond with similar measures.
This could result in trade fragmentation, greater protectionism, competing carbon standards, increased compliance costs and tensions between trade and climate regimes
Adaptation Finance: BRICS’ Major Demand
Alongside its concerns over CBAM, BRICS emphasised the need for greater climate adaptation finance.
BRICS demanded finance that is:
New
Additional
Predictable
Adequate
Accessible
It also favoured grants and concessional finance for developing countries.
COP30 and Adaptation Finance
The COP30 Mutirão decision called for efforts to at least triple adaptation finance by 2035.
What Does Adaptation Finance Support?
It can fund measures such as:
1. Climate-resilient agriculture
2. Flood protection
3. Cyclone shelters
4. Early-warning systems
5. Water-security infrastructure
6. Heat-resilient cities
The Adaptation Finance Gap
UNEP Adaptation Gap assessments have repeatedly highlighted that developing countries face adaptation needs amounting to hundreds of billions of dollars annually, far above current international flows.
Why Do Grants Matter?
Many adaptation projects produce enormous social benefits but limited direct commercial returns. For example, a cyclone shelter can potentially save thousands of lives but does not generate sufficient commercial revenue to attract conventional private investment. Therefore, public, concessional and grant-based finance remains particularly important.
Climate Justice Dimension
Countries with relatively low historical emissions can nevertheless experience severe climate impacts. Consequently, adaptation finance is not merely a question of development assistance. This makes it also an issue of climate justice and equity.
Way Forward For India.
1. Promote Green Steel
India should accelerate green hydrogen, renewable electricity, scrap-based production and electric-arc furnaces.
2. Strengthen the Carbon Market
The Carbon Credit Trading Scheme should be strengthened through robust monitoring, Reporting and verification.
3. Build Carbon-Data Infrastructure
India needs credible product-level emissions measurement and certification systems to help exporters demonstrate the carbon intensity of their products.
4. Support MSMEs
MSMEs should receive concessional finance, technical assistance and common carbon-accounting facilities. This can prevent climate compliance costs from disproportionately affecting smaller firms.
5. Engage the EU
India should pursue negotiations with the EU for:
1. Mutual recognition of credible emissions standards
2. Greater technology cooperation
3. Transparent carbon-accounting methodologies
6. Diversify Export Markets
India should expand its export destinations while simultaneously reducing the carbon intensity of its products.
What Should BRICS Do?
BRICS can play a greater role in shaping a more equitable global climate–trade framework by:
a. Developing a common position against discriminatory climate-linked trade measures.
b. Promoting South-South cooperation in green technologies.
c. Strengthening climate financing through institutions such as the New Development Bank.
d. Developing common carbon-accounting and verification capabilities.
e. Facilitating technology and knowledge transfer.
What is Needed at the Global Level?
A sustainable global framework should:
1. Align trade measures with UNFCCC principles and WTO rules
2. Increase adaptation and mitigation finance
3. Provide affordable climate technologies to developing economies
4. Ensure that climate policies do not become disguised protectionism
5. Promote a just transition that protects workers and vulnerable communities
Conclusion
The CBAM debate represents a larger question facing the global climate regime: Can the world pursue rapid decarbonisation without reproducing existing inequalities in the global trading system?
For the European Union, CBAM is an instrument to prevent carbon leakage and accelerate decarbonisation. For developing countries, however, unilateral carbon-linked trade measures can appear as a new form of protectionism unless accompanied by adequate finance, technology transfer and differentiated responsibilities.
For India and BRICS, the way forward lies neither in resisting climate action nor in accepting unequal climate burdens. The objective should be to build a fair, rules-based and development-sensitive climate - trade architecture that combines decarbonisation with competitiveness, climate justice and a just transition.
