DAW october 28th 2025, Mains Answer Writting 2026

DAW october 28th 2025, Mains Answer Writting 2026

Question

The linkage between India’s Carbon Market (ICM) and the European Union’s Carbon Border Adjustment Mechanism (CBAM) could create both opportunities and challenges for India. Analyse. (250 Words, 15 Marks). 

Model Answer

Approach: Introduction: 

  • Briefly introduce the ICM and CBAM. 

  • Mention that linking both can influence trade competitiveness and climate cooperation. 

Body: 

  • Opportunities for India 

  • Challenges for India 

  • The Way Forward 

Conclusion: 

  • The ICM–CBAM linkage offers both opportunity and challenge; with regulatory alignment and trust, it can safeguard exporters, boost decarbonisation, and promote fair global carbon governance. 

 Introduction:  

  •  The EU–India New Strategic Agenda (2025) proposes linking India’s Carbon Market (ICM) with the EU’s Carbon Border Adjustment Mechanism (CBAM) — a landmark in North–South carbon market cooperation. The linkage aims to avoid double carbon taxation on Indian exports and foster climate-aligned trade, but its implementation faces institutional, economic, and geopolitical hurdles. 

   Body:  Opportunities for India:  

  • Avoidance of Double Carbon Penalties:  

  • Carbon costs paid in India could be deducted from CBAM levies at the EU border. 

  • Prevents dual taxation and protects export competitiveness for carbon-intensive sectors (steel, cement, aluminium). 

  •  Incentive for Decarbonisation: 

  • Encourages industries to adopt cleaner technologies and reduce embedded emissions. 

  • Aligns trade policy with India’s net-zero 2070 commitment and Paris Agreement goals. 

  • Recognition of Developing Country Efforts: 

  • Reflects climate justice, acknowledging India’s domestic carbon pricing efforts rather than penalising them. 

  • Builds credibility of India’s Carbon Credit Trading Scheme (CCTS) globally. 

  • Strengthened EU–India Climate Diplomacy: 

  • Promotes North–South cooperation, technology transfer, and green finance flows. 

  • Opens scope for EU technical assistance to improve India’s carbon accounting and verification systems. 

  • Opportunity for Market Modernisation: 

  • Pushes India to develop a compliance-grade carbon market with verifiable emission caps, transparent registries, and legal enforceability. 

 Challenges for India: 

  • Underdeveloped Carbon Market: 

  • ICM is fragmented and project-based, unlike the EU’s robust Emission Trading System (ETS). 

  • Lacks absolute emission caps, credible verification, and strong institutional regulators — leading to EU scepticism over credit integrity. 

  • Carbon Price Gap: 

  • EU ETS carbon price: €60–80/tonne; Indian credits: €5–10/tonne. 

  • Without price parity, CBAM deductions will be minimal; exporters could still pay most of the CBAM levy. 

  • Political Economy Risks: 

  • Double burden on exporters may trigger industrial resistance and pressure to dilute domestic climate compliance. 

  • Balancing economic competitiveness with climate ambition will be politically sensitive. 

  • Geopolitical and Sovereignty Concerns: 

  • India has opposed CBAM at WTO as unilateral and protectionist. 

  • Linking with CBAM could legitimise a mechanism India has criticised — risking future disputes if EU judges India’s carbon price “insufficient”. 

  • Administrative and Technical Challenges: 

  • Exporters must meet strict MRV (Monitoring, Reporting, Verification) standards for embedded emissions. 

  • Many Indian firms lack capacity for accurate carbon accounting and EU-style certification. 

  • Economic Impact on Key Sectors: 

  • Steel, aluminium, cement, fertiliser sectors may face higher export costs and reduced margins. 

  • ICRA estimates potential losses of $65–160/tonne in steel exports due to CBAM compliance. 

  • Trade Diversion & Employment Risks: 

  • Risk of redirecting exports to less stringent markets. 

  • Possible job losses in energy-intensive sectors if competitiveness declines. 

 The Way Forward:  

  • Institutional Strengthening: Upgrade ICM into a compliance-grade system with verifiable emission caps and transparent registries. 

  • Carbon Price Alignment: Explore sectoral carbon contracts or floor prices aligned with CBAM expectations. 

  • Technical Cooperation: Seek EU support for capacity building, MRV systems, and technology transfer. 

  • Diplomatic Engagement: Negotiate mutual recognition frameworks and WTO-consistent agreements. 

  • Domestic Adaptation: Accelerate green industry transitions through missions like Green Hydrogen, Energy Efficiency, and EV Policy. 

  • Just Transition Measures: Re-skill workers and cushion vulnerable sectors through targeted transition funds. 

  Conclusion:  

  • The ICM–CBAM linkage is a visionary step toward equitable global carbon governance but faces political, institutional, and economic challenges. Its success depends on regulatory alignment, price parity, and mutual trust. If implemented well, it can protect exporters, spur decarbonisation, and set a model for North–South climate cooperation.