The Commerce & Industry Ministry is assessing the possible impact of the EU’s proposed carbon border adjustment mechanism (CBAM) that will come into play from October this year and see how its exports will fare compared to its competing countries such as in South America and South East Asia, sources tracking the matter have said.

While New Delhi is waiting for details on how the carbon print will be calculated by the EU on imports and to what extent it will translate into additional taxes for items such as steel, it also wants EU countries to transfer the required technology to India to help it build its capacities to meet the environment norms.

Through the CBAM, the EU seeks to impose higher import tariffs on carbon intensive products, such as steel and aluminium to begin with, to prevent “carbon leakage”. The carbon tariff will be levied starting 2027 and the list of affected items will subsequently be expanded.

“The CBAM would just act as a barrier to trade if the EU does not back it with technology transfer to developing countries. Also the calculation of carbon tax cannot be done using a one size fits all formula. Other factors such as per capita pollution, forest cover and sustainable living also has to be acknowledged when climate concerns are brought into trade discussions. India is stressing on all these points in its discussions with the EU,” the source said.

‘Forest cover a plus’

Interestingly, there is also a possibility that if forest cover is taken into consideration while calculating carbon print for an item, India could be at an advantage vis-a-vis countries in Latin America such as Brazil or South East Asia such as Indonesia.

“India’s forest cover is increasing. It already has a reserved forest area, which is separate from cultivable land, and it cannot be touched. These factors should go in India’s favour. However, in other countries such as Brazil, the forest cover is depleting,” the source said.

Studies initiated by the Commerce Ministry are looking at whether India could gain market access in the EU while its competitors lose out because of the green measures. “There is also a possibility that if a competing country loses its market share in the EU, it could ship cheaper items to poorer countries in Africa or to India. We have to see the implications. So all possible scenarios are being studied,” the source said.

India has already started holding discussions with the EU at the WTO and bilaterally on CBAM and how it is likely to play out and is also studying if the proposed Free Trade Area  with the EU could help address its concerns, the source added.

Steel exports

Although, India does not expect its aluminium exports to be affected, its steel exports could take a hit if the proposed carbon tax is imposed. 

“Indian companies such as TISCO and Arcelor are already supplying steel to the EU in a big way. One needs to see how carbon equivalence will be looked at and how carbon print will be calculated. The Commerce Ministry is also talking to the Climate Change Finance Unit of the Department of Economic Affairs and the Steel Ministry to understand the challenge at hand and how it could be met,” the source said.