The Carbon Border Adjustment Mechanism (CBAM) aims to set a fair price on the carbon emitted during the production of energy-intensive products, like iron, steel, cement, and fertilizers, entering EU
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Chief Economic Advisor V Anantha Nageswaran on Thursday raised concerns around the Carbon Border Adjustment Mechanism (CBAM) while calling for a more positive approach by advanced economies so that developing countries don’t get a rough deal for ensuring economic activity in the developed world.
“If developing countries are insuring the lives and property of people and businesses in developed nations, what are they getting in return? What is the premium that developed nations are willing to pay for it? Surely, it cannot be CBAM,” the CEA said.
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The Carbon Border Adjustment Mechanism (CBAM) aims to set a fair price on the carbon emitted during the production of energy-intensive products, like iron, steel, cement, fertilizers, and aluminium, entering the EU.
The carbon tax will come into effect from January 1, 2026. During the trial period, which started on October 1, 2023, companies from seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium, and hydrocarbon products, have to share emissions data with the EU.
The CEA was speaking at the regional workshop on climate finance on the role of insurance in financing climate risk, organised by the Department of Economic Affairs and the Asian Development Bank (ADB).
Nageswaran, while stressing that climate change involves geopolitical risks, said that countries moving towards renewable energy become more vulnerable than they were when they depended on fossil fuels, especially when it comes to the supply of rare earths and critical minerals.
“Dependence on few sources of supply is a risk that needs to be insured. Is the insurance industry better prepared to finance that kind of risk, or is it something that can be done only through international collaborative arrangements?” he added.
Financial institutions themselves, the CEA said, need to protect themselves from the risk of stranded assets due to energy transition. “How to insure banks? They may need more capital if assets have to be written off… Contingency capital needs to be brought on.”
Nageswaran also highlighted the need to insure against wrong policies arising out of excessive fear of emissions in the developed world that would result in a loss of output and employment in developing nations.
“Insurance is a hedge against losses, and today even if we saw all emissions, there are going to be consequences arising out of historical emissions. They will be with us for several decades, and therefore developing countries will need to take action against them, and to do so, there will be a loss of output and employment,” he said.
The CEA called for a global mechanism and commitments from developed countries to provide financial assistance or compensation. He said, “Those are the kinds of insurance that have not come through in the last several years.”
Nageswaran also said that global warming is not all just about doom and gloom, and while there may be an increase in high-temperature-related deaths, there would also be a huge decline in cold-related deaths.
“Adaptation is the best form of insurance, and for that to occur, the policy framework must put as much focus on adaptation and resilience as only on emissions,” the CEA said.
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