India is working on a domestic carbon tax on similar lines to the European Union's Carbon Border Adjustment Mechanism (CBAM), which will help the country transition to green energy while bringing down its carbon footprint, Commerce Minister Piyush Goyal said on November 2.
"There will be no additional CBAM levy if an exporting nation also taxes carbon emissions locally. So, if we collect the tax in India itself and use it for our green energy transition, it will help our exporters bring down our carbon footprint. We are working on finding a solution around domestic tax to take care of equating with European taxes on carbon emissions," the Union minister said while speaking at the ORF's first edition of the Energy Transition Dialogue.
The CBAM is a regulation introduced by the EU to put a “fair” price on carbon emitted during the production of items identified as carbon-intensive from non-EU countries. This will be in the form of higher import levies, which will be applicable from January 2026.
While the items covered under CBAM include cement, iron and steel, aluminium, fertilisers, electricity and hydrogen, in the case of India, the hardest hit sectors could be iron and steel and aluminium.
Exporters from these two sectors may end up paying 20-35 per cent additional import levies if their carbon emission compliance cannot be established, according to a report by the Delhi-based research body, Global Trade Research Initiative.
Goyal said that India is in dialogue with the EU on CBAM. "We are talking to them as to how carbon be priced at the same level in India as it is being priced in the EU," he said.
The minister called out the developed world for failing to deliver on their promise of providing the developing world with $100 billion as climate funding.
"We had all agreed at Paris at COP21 that different nations will have different levels of responsibility based on their addition of carbon emissions. They had promised an amount of $100 billion- as they were the polluters in the first place," he said.
"Keeping in mind that polluter pays the principal, it was expected that these countries would go that extra mile while providing low or zero-cost funding to help the developing world with the transition. But sadly, they have let the whole world down. I don’t see ability or enthusiasm in the developed world to meet the $100 billion climate funding obligation," the minister added.
The minister also seemed confident of CBAM helping India's exports. "CBAM will be the death knell of manufacturing in Europe. The first casualty of CBAM as I can visualise, will be the auto sector in Europe. Every product that becomes expensive in Europe after CBAM, will provide India a competitive edge in the rest of the world, those companies will come and start manufacturing in India," he added.
Stating that the Europeans have 'shot themselves in the foot with CBAM', he said, "They may soon realise that and drop CBAM as this is ill-conceived and does not address the entire issue correctly and fairly."
"The least they must do is give different values to less developed and developed countries and make a level playing field in smarter ways than trying to hurt India or its exports," the minister added.
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