As a result, the domestic market of any country certainly becomes more competitive. Interesting way, youThere is an important causal relationship here between these two most important policy areas in relation to the impact that each accrues on the other, not only in a negative but also in a positive approach.

Contrary to general perception, international trade plays an intriguing role in the emission of greenhouse gases at every stage of the process (emissions from the international transport of goods and services) that aggravate climate change. The most recent estimates show that around a quarter of all global emissions are linked to international trade flows.

However, on the other hand, climate change also poses serious threats and damages to the free flow of trade. These threats emanate from the disruption of supply chains and international trade flows, changes in the comparative advantages and specialization of the respective countries, and severe repercussions on the balance of payments. Climate change is also having a huge impact on agriculture and tourism, especially in low- and middle-income countries. The agricultural and tertiary sector is more important than industrial activities in these countries and any vulnerability to agriculture weighs not only on domestic food security but also on the economic development of food-exporting countries.

As it was recognized earlier that trade exacerbates climate change, it also acts as a catalyst to address it and has the potential to enhance mitigation and adaptation efforts by making available the goods and services that do. International trade encourages production in areas with cleaner production techniques, promotes the diffusion of environmental goods and services necessary for the transition to low-carbon production that can help reduce emissions and improve the management of the environment. It can be pointed out that today, the global trade in environmental goods is estimated at more than 1,000 billion dollars per year and that it is increasing. Another aspect of international trade is also the fact that imports and foreign aid play a vital role in the immediate recovery from any natural disaster, when essential items such as food and medicine are in short supply. Trade, in short, is a critical node to mobilize if the world is to achieve green, resilient and inclusive development.

In the same way, Climate change also opens a window of opportunity for sustainable growth and opportunities to promote the production of energy-efficient products and trade diversification in the transition to a low-carbon world.

Recently developed countries, especially developed countries, are taking and deliberating measures against unsustainable international trade practices. In this context, the latest border carbon tax mechanism proposed by the EU has done quite a bit of tricks. Let’s see what the border carbon tax entails. The “carbon border tax” can be defined as a penalty tax aimed at discouraging the import of carbon-intensive goods such as steel, aluminum, cement, fertilizers and electricity through the mechanism carbon border adjustment (CBAM). The European Commission plans to levy the tax gradually from 2026 by imposing additional import duties on certain products based on their carbon content to discourage carbon-intensive imports.

The carbon tax will essentially be a Pigouvian tax that balances the marginal social costs against the benefits of additional emissions, thereby internalizing the costs of environmental damage. The tax aims to “incentivize” greener manufacturing around the world and protect European industries from outside competitors who can manufacture products more cheaply because they are not charged for their carbon emissions during manufacturing processes. It is also an attempt by the EU to stop carbon leakage to discourage producers from moving production outside the EU and importing goods instead.

Thus, the border carbon tax is seen as an indirect attempt to force emerging economies, including India, to adopt cleaner, fossil-free practices to manufacture goods.

The general consensus in the developed world is that such measures will support climate change mitigation goals by increasing the importance of export and production diversification in countries dependent on exports of fossil fuels and energy-intensive products. carbon. However, opportunities will only arise for countries that can demonstrate carbon competitiveness in manufacturing sectors such as electronics and other light industries.

However, developing and middle-income countries lack appropriate capabilities to identify areas of carbon competitiveness and their businesses are unable to measure and verify carbon reductions for a given good or service. As a result, exports from low- and middle-income countries will be hardest hit and could be excluded from global value chains.

By raising the prices of products made in India in the EU, this tax would make Indian products less attractive to buyers and could reduce demand.

Nevertheless, India is already on the path of greening its economic system with appropriate policies to boost the renewable energy system. It will also go a long way towards decarbonizing its manufacturing sector. Under the Perform Achieve and Trade (PAT) program launched in March 2012, energy-intensive sectors managed to reduce approximately 92 million tonnes of carbon emissions over the two cycles of PAT implementation between 2012 and 2019 (the results of the third cycle are awaited but). Currently, the PAT Cycle IV is being implemented. Energy savings of approximately 26 MTEp are expected. Also at the recent COP26 held in Glasgow, India announced ambitious targets that would certainly enable it to boost the use of cleaner production processes and technologies.

However, with regard to the short-term implications, before responding to such measures, the developed world should also ensure that there is an adequate flow of funding and technical support to the developing world to which it is committed. is engaged. This would help to make necessary, even transparent, an easier implementation of the green transition trajectory.

In a nutshell, the right symphony between trade and environmental policies can provide effective economic incentives to achieve sustainable economic growth, such as negotiating tariff reductions on environmental goods and services. It is recognized that the inclusion of environmental provisions in bilateral and regional trade agreements has also helped to harmonize environmental regulations between developed and developing countries. Moreover, the individual capacity and national priorities of different jurisdictions cannot be ignored. For this, as mentioned earlier, more advanced economies will need to provide resources and institutions for capacity building of less developed partners to encourage institutions and strengthen environmental regulations.