The EU is ready to consider India’s proposal of domestic collection of the carbon tax that the bloc plans to levy on Indian steel, aluminium and cement shipments under the Carbon Border Adjustment Mechanism (CBAM) from January 1, 2026, but it would be subject to “detailing and discussions”, officials tracking the matter have said.

European Commission (EC) officials have also assured Indian exporters that their specific concerns on reporting norms for carbon intensive goods in the transitional phase of CBAM that kicked off from October 1, including worries about data privacy, will also be addressed soon.

“India’s proposal on collecting the carbon tax levied by the EU has not been rejected as CBAM is not a revenue generating mechanism for it. EU officials are saying that theoretically it can be done because collection of carbon tax by India will result in adding to the cost of the exporters of carbon intensive products, which ultimately is what they want. But they said that more detailing of the proposal and discussion was called for,” the official told businessline.

The CBAM is a EU regulation to put a “fair” price on carbon emitted during production of items identified as carbon-intensive from non-EU countries. This will be in the form of higher import levies applicable from January 2026. EU companies already account for their carbon emission through the bloc’s Emission Trading System. 

While the items covered under CBAM include cement, iron & steel, aluminium, fertilisers, electricity and hydrogen, the hardest hit sectors in India could be iron & steel and aluminium, followed by cement.

“If India is allowed to collect EU’s carbon tax it could be a substantial amount as some estimates show that additional levies up to 20-35 per cent may be imposed on Indian exporters of steel and aluminium if carbon emission compliance cannot be established,” the official said.

However, the government wants to ensure that the carbon tax levied on Indian products is as low as possible. It wants to have a fully functional Carbon Credit Trading System in place by January 1 2026, and get it recognised by the EU, so that compliance can be established for most exporters, the official added.

While the CBAM transitional phase, where exporters need to specify the quantity of CBAM goods shipped and the embedded emissions, has already started, shippers have time till January 2024 to submit the first quarterly report. “In the workshops that the EC officials held with Indian exporters, several doubts were raised on the data that was to be submitted and the protection of sensitive information. The officials said that they would get back on all doubts raised,” the official said.