Which of the following statements about CBAM (Carbon Border Adjust-men

Which of the following statements about CBAM (Carbon Border Adjust-ment Mechanisms) is/are correct ?

1. These are an emerging set of trade tools to allow movement of carbon-intensive economic activity from a jurisdiction having less stringent climate policy to a jurisdiction having stringent climate policy.
2. These are meant to increase the environmental effectiveness of climate policies

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1 only

2 only

Both 1 and 2

Neither 1 nor 2

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC CAPF – 2024

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Statement 1 is incorrect because CBAM is designed to *prevent* carbon leakage (movement of production to countries with less stringent climate policies) by imposing a price on the carbon content of imports. Statement 2 is correct; by pricing carbon on imports, CBAM incentivizes other countries to increase their climate ambition, thereby making climate policies more effective globally.

CBAM is a policy tool primarily developed by the European Union to tackle carbon leakage and encourage trading partners to raise their climate ambitions in line with the EU’s own climate goals.

CBAM works by requiring importers to purchase certificates corresponding to the carbon price that would have been paid had the goods been produced under the EU’s carbon pricing rules. The mechanism initially applies to carbon-intensive goods like iron, steel, cement, aluminum, fertilizers, electricity, and hydrogen. It entered into force in October 2023 with a transitional period.

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