July 28, 2021
either/view ⚖️
Novel tax
To: either/view subscribers
Good morning. When your privilege is obstructed, how far will you go to ensure you get it back?
An Israel Defense Forces soldier’s mother has filed a complaint on his behalf against Ben & Jerry’s for withdrawing its ice cream product in the Israeli-occupied Palestinian territory. The complaint noted that the withdrawal has stopped him from enjoying the ice cream ‘like everyone else’ and has demanded the reversal of the settlement boycott and to pay compensation.
Whether big or small, your rights are your rights, and you ought to fight for them!
📰 FEATURE STORY
The Carbon Border Tax
The whole global trade market is shaken up by one proposal of the European Union which is aimed towards curbing climate change. But why?
We all would agree that addressing climate change is the need of the hour. In this regard, the EU has recently proposed the ‘carbon border tax’. This is a tax that the EU will impose on imported goods, aiming to curb carbon emissions and climate change at a global level.
However, several countries including India and China find the tax discriminatory. Experts also fear that the tax may turn out to be counterproductive.
Context
The EU has been taking several measures to control climate change. Recently, it proposed a dozen policies, one of which was the Carbon Border Adjustment Mechanism (CBAM) that will come into action by 2026. Simply put, it is a tax imposed on imports. Before we look into the proposal, let’s talk about a few key terms like carbon footprint and carbon tax.
The term ‘carbon’ when used in words like carbon footprint might be misleading. It does not refer to carbon alone. It either indicates carbon dioxide or includes all greenhouse gases (GHG) that increase global warming.
‘Carbon footprint’ is the total amount of GHG that is generated by our actions, both individually and collectively. The fee imposed on companies that involve carbon emissions (burning of carbon-based fuels) is called ‘Carbon tax’. So, we can say it’s a kind of pollution tax. The price imposed in the name of ‘carbon tax’ is called ‘carbon price’.
Several countries impose carbon tax to discourage domestic industries from emitting more greenhouse gases. This also encourages industries to shift to alternative fuels and technologies. The final result is that pollution is controlled and so is climate change.
While the carbon tax is a well-known pattern, this is the first time a country is planning to impose such a tax on goods imported from other countries. This levying of the carbon tax on imports by the EU is in short the CBAM.
Initially, the tax will be rolled out for a few products including steel and later, it will be extended to other goods. Under this plan, the importers would have to buy certificates that show the amount of carbon dioxide emissions incurred in the goods imported. This measurement will be reflected in tonnes and payment will be made accordingly.
Why EU advocates CBAM
There is always a first time for everything and the EU and its supporters see CBAM as a small spark to ignite a global collective action on tackling climate change.
The EU focuses on reducing carbon emissions by at least 55% by 2030 when compared to its carbon emission levels in the 1990s. Domestic industries have already cut emissions by 24% and have immensely reduced carbon levels in the recent past.
So, the EU has now planned to reduce the same in its imports. Notably, the resolution stated that its imports cause 20% of its carbon dioxide emissions. Therefore, a carbon border tax would result in the reduction of GHG emissions in its imports and lessen the EU’s carbon footprint.
Besides curbing climate change, there are two important financial and trading benefits the EU is aiming at. It wants to withstand its market at the global level and ensure its industries do not move to a different country.
Firstly, domestic industries incur a lot of expenses as they focus on reducing carbon emissions. This is then reflected in the pricing of their products both within the country and internationally. As a result, products from the EU might be costlier than the products from other countries in the global market. This could in turn reduce their exports.
Secondly, there are higher chances of companies shifting their locations to countries outside the EU where there are no stringent climate change regulations. With no charge on carbon output and no mandate of alternatives, the companies can save a lot on their expenses.
Through this proposal, they aim to reach their goal of controlling climate change while managing to maintain their power in the global market. They would also not lose out on their important industries to other countries. You might be familiar with the proverb ‘One stone, Two mangoes’. This plan goes one step ahead and aims at hitting three mangoes with a single stone.
While several countries have opposed it, the UK and US have welcomed such a move. Supporters asserted that this novel idea could set an example for many countries to follow. Additionally, this proposal also lays down a few exemptions to ensure that industries do not undergo unwanted pressure. If the importers provide verified information from their producers that the carbon price (tax) has already been paid during the production process, then the relevant amount will be deducted from the final bill.
Why other countries are against CBAM
Every first time brings along new fears, doubts and drawbacks. Rightly so, several countries and experts believe that CBAM could backfire and further adversely affect the global trade market.
To begin with, let us figure out the costs incurred in making such additional tax payments. EU carbon prices amount to more than 58 euros/tonne this year. According to an op-ed in Nikkei, this means that the carbon border tax will be at least 50 euros/tonne by 2035. This has raised concerns among countries. In a joint statement released by BASIC bloc — Brazil, South Africa, India and China – the tax policy is being called ‘discriminatory’. Because CBAM might result in increasing the prices of the imported goods and would then inevitably shrink demand.
While the EU could benefit from increasing rates of its importers, India could majorly face the brunt of price rise. The EU remains India’s 3rd largest trade partner, with record trades of $74.5 billion, and exports alone amounting to $41.36 billion in 2020. In other words, it contributes to 1.11% of India’s global trade. This tax plan will reduce the demands of Indian products and might affect the trades between India and the EU. Therefore, India has a lot to lose if this proposal comes into action.
China has called out that this tax violates trade principles. It further claimed that this plan will expand climate change issues into global trade. The UN principle of Common but Differentiated Responsibilities and Respective Capabilities (CBDR–RC) acknowledges that richer countries are responsible to assist developing and vulnerable countries to fight climate change by providing financial and technological assistance. The BASIC group asserted that CBAM goes against this principle.
Since most countries have their own carbon pricing mechanisms, there is no clarity on how the EU will execute this plan. The U.S. Treasury Secretary Janet Yellen opined that it should also recognize that few countries use means other than carbon pricing to curb emissions. Notably, the U.S. doesn’t have any carbon pricing method in place.
Meanwhile, experts question its practicality and worry that the plan would become counterproductive. For instance, the experts think that tax compliance could discourage sectors that are already adopting cleaner technologies in small ways. China also noted that each country should take actions against climate change based on their economic level and development, but this tax would harm both the willingness and capability of a country to battle the issue.
🕵️ BEYOND ECHO CHAMBERS
For the Right:
The Truth About the Kargil War Is Bitter But it Must Be Told
For the Left:
Snooping culture: We journalists also contributed to it, says Barkha Dutt
🏴 STATE OF THE STATES
Solo performance (Punjab) – As days pass, the political scenario in Punjab is taking new turns. After Congress, the Aam Aadmi Party is now turning heads with their decision to contest alone in the upcoming 2022 Assembly elections. They have announced that they will not be tying up with any other party for the election. Moreover, they have induced fire in the state by inviting ‘well-meaning’ people from other parties to join AAP. Now that the ground is set, let’s wait for the games to begin.
Going online (Andhra Pradesh) – With WFH offices, colleges and watch parties, life during the pandemic is mostly happening online. Of course, when everything is over the Internet, we have started becoming concerned about our privacy. But the Andhra Pradesh government thinks otherwise. Recently, the Board of Intermediate Education said that only online admissions would protect the data integrity of students. They warned all junior colleges to stop illegal offline admissions lest all admissions will be cancelled. This comes at the right time, as some private institutions are known to hold back original certificates of students in the name of verification and abuse them to pay tuition fees. Maybe such commercial practices have made education a business, what do you think?
Smugglers busted (Odisha) – Many people go against the law to poach and smuggle animals. Simultaneously, the police keep raiding and arresting dealers. In a recent case, Odisha saw its biggest recovery of Indian pangolin scales weighing over 14 kg. The huge amount of scales from the endangered animal were collected from poachers and stored in a godown by two men. The police posed as customers and caught the men red handed during their deal. With such good tactics and strategy, we are sure the police can hunt down more smugglers.
Border dispute (Assam) – The age-old border dispute between Assam and Mizoram grew fierce over the last few days. The violence witnessed the death of six Assam police officers, while 80 civilians were injured. Now that the shooting has stopped and both sides regret the violence, we hope better sense prevails.
Criminal Cop (Gujarat) – The society gives immense respect for police officers. They devote their lives for the public and work hard to protect the people. However, times have changed. People now fear the police for the wrong reasons. Take for instance, Sweety Patel, she never knew her live-in partner would turn from a cop to a criminal. At least, that’s what the Ahmedabad Crime Branch says. Police Inspector Ajay Desai has allegedly killed his partner as he could not handle the pressure and wanted a break. Guess Sweety, like us, never expected such an ugly break.
🔢 KEY NUMBER
₹10,000 crore – Planned investment of Torrent Gas in city gas distribution across the country. They have set a deadline of completing the investments and seeing profits over the next five years.