India in talks with EU to allow Indian energy auditors to do carbon verification of exports

There are about seven commodities on which the EU is set to impose a carbon tax of which the two areas in which India will be impacted are steel and aluminium

India is in talks with the EU to allow Indian energy auditors to conduct carbon verification of its exports on which the European Union's carbon tax, to be introduced on October 1 this year, will be levied, officials from the Commerce Ministry said on May 15.

“They should allow our energy auditors to do the carbon verification. That will reduce the cost of verification. Talks are on with the EU on this,” DGFT Santosh Sarangi said speaking with the media in New Delhi.

The European Union is introducing the Carbon Border Adjustment Mechanism (CBAM) from October 1, 2023, expected to result in a 20-35 per cent tax on selected imports into the EU from January 1, 2026.

Domestic companies from seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium and hydrocarbon products will have to seek compliance certificates from EU authorities to comply with the CBAM norms.

However, with steel and aluminium being the two most carbon-intensive sectors, the two sectors are expected to be hit badly.

“The extent to which the impact can be mitigated, the adaption process of industries, the extent to which recognition of the testing and certification agencies can be ensured are all areas on which the inter-ministerial group, which includes the Commerce Secretary, are coordinating,” the official said.

The ministry will also push the European Union for a mutual recognition agreement for its carbon certificates, a ministry official had earlier informed Moneycontrol.

The government in its internal report has estimated that less than 1.8 per cent of India’s exports valued at about $8 billion would be hit by CBAM.

However, the monetary impact is still being assessed depending on the different mechanisms prescribed by the EU.

“EU has prescribed different mechanisms for imposing a carbon tax. For instance, for steel manufacturing through electric furnaces and through blast furnaces, the carbon border tax will be different. Assessment of how much steel being produced in India is going through blast furnace and how much through electric furnace has to be done,” Sarangi explained.

The issue of a carbon tax is meanwhile being taken up bilaterally with the EU and multilaterally at the World Trade Organisation (WTO), as well as other forums. Bilaterally, India has also asked the EU to have a mutual recognition agreement and exempt MSMEs in the country.

Also read: India seeks exemption for MSMEs from EU's carbon tax, presses for mutual recognition