An ever greener Union: The EU, carbon pricing and India

As a paradigm shift of EU policy-making, the European Green Deal entails considerable policy ramifications in terms of external action – particularly through the EU’s economy’s green transformation and thus, changing trade regulations, production and consumption patterns. Polarised reactions to the proposed Carbon Border Adjustment Mechanism (CBAM) raise the question of how global sustainability can be ensured, in terms of environmental, economic and foreign policy-making.

A comment by Anna-Loreen Mondorf

 

The European Green Deal’s external dimension

As part of a holistic approach to sustainable development and climate-neutrality by 2050, the European Green Deal (EGD), presented by the European Commission in 2019, helps implement the European and global climate objectives within the framework of the UN Sustainable Development Goals and the Paris Agreement. Although the EGD has been introduced as an internal policy ‘revolution’, it exerts influence far beyond EU borders and can hence be seen as a “foreign policy initiative.” The EGD objective of a just twin transition is thus being displayed in almost any external-related policy field, including environmental, energy, and trade policy, so that climate and foreign policy can no longer be separated from each other. 

In this context, the European Commission proposed in July 2021 a new Carbon Border Adjustment Mechanism (CBAM), among other instruments, within its EGD legislation package “Fit for 55”, aiming to reduce GHG-emissions by 55 percent until 2030. Based on the already existing EU-Emission Trading System (ETS), the CBAM intends to reduce the risk of carbon leakage. By equalising carbon prices of EU and imported products (including cement, steel, aluminium, fertilisers) in compliance with WTO rules, production relocation of carbon-intensive industries to countries with lower environmental standards should be prevented. From EU-perspective, the CBAM should help encourage non-EU countries to adapt national climate measures to EU standards and further decarbonise their economies in the fight against climate change as well. 

 

CBAM: where does internal policy end and external begin?

While the CBAM is one of the Commission’s main instruments to reduce global GHG emissions, non-EU (trade) partners partly interpret the EGD, and especially CBAM, as a protectionist agenda. While it can have positive consequences for the partner countries’ workers and environment, the tendency of “greening” external trade relations implies additional costs, and thus potentially negative effects on exports to the EU. Instead of adapting, possible reactions of trade partners to the CBAM may include creating trade barriers on EU imports, challenging the CBAM’s WTO-compatibility, negotiating exemptions, hence questioning the EU’s role as a global climate actor.

India’s trade and climate policyGiven its economic and diplomatic long-term implications, the CBAM’s announcement prompted polarised reactions across the globe, also in India. Although Premier Minister Narendra Modi announced India’s commitment to reach climate-neutrality by 2070, the country is already facing multiple socio-economic and environmental challenges, fearing to be economically even more affected by CBAM considering Indian aluminium and steel exports to the EU. Raising the point of climate fairness, CBAM is perceived as discriminatory to emerging countries from Indian perspective. India may be the world’s third-biggest emitter of GHG-emissions, but has comparatively low per-capita emissions. Hence, it is now demanding financial support in face of an increasingly growing regulatory environment and ‘unfairly’ distributed climate change costs.

India’s position may just be one among many – but gives an exemplary foretaste of the diverging perceptions of (EU) climate policies, which may stem from socio-economic disparities, among other reasons. However, the green transition can only be successful, both on a European and global level, if the EU manages to integrate its external partners and develop a coherent external policy. If the EU does not want to lose long-term influence in global climate governance, other perspectives need to be taken into careful consideration, which the Indian position on CBAM reminds us of.

 

The nexus of foreign climate and trade policy: how foreign can it be?

In face of the need for urgent action against climate change, anchoring EGD diplomacy in foreign and particularly trade policy can be seen as a legitimate, effective tool to promote green interests beyond EU borders. Given the EU’s role as a pivotal economic and climate actor, the EGD’s external effects may increase the level of global climate ambition, which is in the EU’s interest for both strategic and ecological reasons. 

However, a too Eurocentric worldview should be avoided, assuming that all its partners automatically would or could follow the European lead in climate action – facing the challenge of a constant tightrope walk between encouraging and enforcing environmental measures on trade partners to further decarbonise our economies. Instead, the capability to change perspective should be continuously cultivated on both sides, particularly if the EU wants to maintain its position as a successful, authentic, and credible climate actor and economic power – to literally reintegrate the ‘foreign’ into (green) EU foreign policy-making. 

 

The Polis Blog serves as a platform at the disposal of Polis180’s & OpenTTN’s members. Published comments express solely the authors’ opinions and shall not be confounded with the opinions of the editors or of Polis180.

Image via pixabay

 

Anna is Co-Lead of the programme EU Economic Policy and member of Polis180’s executive board, responsible for regional groups, program coordination and community management. She holds a B.A. in Economic Policy with a specialisation on Energy Policy from universities in Berlin and Paris. Having worked in institutions on German and EU level, she is now doing a Master’s degree in European Studies: Transnational and Global Perspectives in Belgium.

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