With just three months left for the European Union (EU) to implement its Carbon Border Adjustment Mechanism (CBAM), the issue has become a top priority for India in the ongoing trade talks with the EU.
The EU’s CBAM is a climate policy tool aimed at reducing carbon leakage by imposing carbon tariffs on imports from non-EU countries with lower environmental regulations. The EU, through CBAM, will initially impose a carbon price on imports covering iron and steel, aluminium, cement, fertilisers, electricity and hydrogen. The carbon tax comes into effect from January 1, 2026.
"Yes, India will flag the issue of CBAM and seek at least some flexibilities as has been offered to the US, if not more," said a government official privy to the matter when asked if the carbon tax issue will be taken up in the India-EU trade talks.
According to government officials and industry stakeholders, Indian exports to the EU of carbon-intensive goods such as iron, steel, aluminium, and cement will particularly be vulnerable, if CBAM is implemented on an as is basis. For such Indian exporters, it will be a double whammy after the steep tariffs imposed by the United States (US).
Also read: EU commissioners to meet commerce, agriculture ministers as next round of FTA talks open.
Besides, Union Commerce Minister Piyush Goyal has on several occasions made it clear that if the EU goes ahead with its current plan of imposing CBAM, India reserves the right to retaliate.
"I have stated it clearly to the EU that if CBAM is implemented, India will retaliate. It will lead to a decline of Europe as it will actually lead to inflation and infrastructure becoming more expensive. But in Europe’s decline, there will be immense opportunity for India. It will open up a much bigger market for us," Goyal said on May 6.
BP Singh, CMD of state-run National Aluminium Company Ltd (Nalco) told Moneycontrol that CBAM will have little impact on its major export product which is alumina. "For Nalco, our export business is mostly in the chemicals segment, which is alumina. About 50% of our alumina is exported. The good news is that the carbon emission of our alumina production is already very low. Hence, CBAM is not going to impact our alumina exports," he said.
Singh added that in future Nalco has plans to export its metals products, which is primarily aluminium. “Production of aluminium is a carbon intensive process. To meet our future goal of exporting aluminium, we are keeping in mind CBAM for which we have decided to start producing green aluminium by 2030. By 2030, at least 30% of our electricity used for such production will be through green energy. This is our plan of navigating CBAM,” he said.
Also read: India may offer import duty concessions on high-end cars to the EU.
In an analysis published in August this year, the Centre for Social and Economic Progress (CSEP) stated that India's CBAM-exposed exports to the EU account for only 0.2% of its GDP. "However, the iron and steel sector constitute 90% of these exports, making it particularly vulnerable. Thus, there is concern that imposing carbon tariffs could erode India’s export competitiveness and increase production costs in key industries," it said.
Government officials said India is working on some mechanism to offset the CBAM if it is implemented. “A carbon tax within India will retain revenue domestically. It will help avoid double taxation. But nothing is final yet,” said a second official.
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