The government will carry out a sectoral analysis to see how the European Union’s (EU’s) proposed carbon border adjustment mechanism (CBAM), that will start unrolling from October this year, is set to affect the Indian industry and will take action if it proves to be a non-tariff barrier for some products, an official source has said. 

“There is a possibility that different sectors may be affected differently by CBAM. The Commerce Ministry will carry out a sector-by-sector analysis to find out the impact on individual sectors. This is important to take targetted action,” a source tracking the matter told businessline.

Also read: EU’s troubling proposal for carbon neutrality

Also read
The EU’s carbon tax is a non-tariff barrier and will hit exports from India

Climate is EU’s big trade weapon

With 15 per cent of India’s exports going to the EU, the proposed CBAM could put Indian exporters in a spot

India to raise at WTO EU’s plan to levy carbon tax on imports

The Commerce Ministry has also roped in the Climate Change Finance Unit of the Department of Economic Affairs and the Steel Ministry to analyse the problem at hand and look at possible solutions, the source said.

New Delhi will also examine if it needed to make the discussions on CBAM part of the on-going negotiations for a Free Trade Agreement with the EU. “When we are negotiating an FTA with a trading partner, we expect to get greater market openings. If it turns out that while tariffs are being eliminated under the FTA, other barriers are taking their place, we need to sort it out,” the source said.

New Rules

Under the proposed CBAM, the EU will levy an import tariff on carbon-intensive goods from 2026. The mechanism aims to level the playing field by taxing foreign production with less-stringent emissions regulations and reducing the risks of leakage. The list of items to be initially covered under CBAM include iron and steel, cement, aluminium, fertilisers and electric energy production.

For some items, like solar energy products, the carbon foot print is less and such goods could benefit from CBAM, the source explained. For others such as iron and steel and aluminium, there could be a problem, he added.

‘Needs transparency’

“The EU has to be transparent about how the carbon tax is being calculated for various sectors and it can’t use the same one for all countries. Factors such as per capita pollution, forest cover and sustainable living should also be taken into account,” the source said.

Also read: EU’s carbon tax could prove to be major challenge for Indian metal exports: GTRI report

Once the government has done its sectoral analysis, it will have a better idea of where Indian industry stands, as far as the CBAM is concerned, and can have a pointed discussion with the EU on what it wants, the source added.

Related Topics