Developing countries carbon tax: Chief Economic Adviser (CEA) V Anantha Nageswaran raised concerns on Thursday, February 15, regarding the Carbon Border Adjustment Mechanism (CBAM) and other measures adopted by developed nations to address climate change, asserting that they unfairly target developing economies.

The European Union's decision to levy a carbon tax (CBAM) on products like steel and cement imported from countries such as India and China has drawn criticism from Nageswaran. The CBAM, scheduled to take effect from January 1, 2026, aims to curb carbon emissions by imposing taxes on carbon-intensive imports.

During a Regional Workshop on Climate Finance organised jointly by the Department of Economic Affairs and the Asian Development Bank, Nageswaran questioned the rationale behind penalising developing countries for their efforts to combat climate change. He emphasised that these nations are also safeguarding lives and properties worldwide by mitigating climate risks.

Nageswaran argued that developed nations must offer more than just carbon border adjustment mechanisms as incentives for developing countries to engage in climate action. He stressed the need for a more positive approach that recognizes the contributions of developing economies to global sustainability efforts.

The imposition of carbon taxes by the EU poses potential challenges for Indian exporters, given that Europe is a significant import destination for Indian goods. In the fiscal year 2022-23, India's total trade with the EU amounted to $134.71 billion, with imports totaling $59.87 billion and exports at $74.84 billion.

From the perspective of developing nations, Nageswaran highlighted the importance of continued economic growth as the best insurance against climate change. He underscored the need for sustainable development strategies that balance environmental objectives with economic prosperity.

The background note prepared for the workshop highlighted the significant financial costs associated with natural disasters and climate-related hazards. Global economic losses from disasters in 2022 amounted to $275 billion, with insured losses covering only 45 per cent of the damage. Despite the availability of financial coping mechanisms such as insurance schemes, governments and vulnerable communities often bear the brunt of these costs, contributing to financial instability.

Over the past decade, annual global insured catastrophe losses averaged $100 billion, reaching a peak of $154 billion in 2017.

(With PTI inputs.)