EU Carbon Tax: Indian exporters to report emissions based on new default values

The default value for carbon emissions released by the EU recently could have an impact on Indian steel and cement exporters if these numbers are taken as a benchmark to calculate carbon tax dues under the proposed Carbon Border Adjustment Mechanism (CBAM), per industry estimates. 

Taxation under CBAM starts in 2026. 

For the transitional period between 2023 and 2026, exporters here need to start reporting on embedded carbon emissions in their shipments to the EU. Reporting (even if one goes by default values) needs to be done on a quarterly basis, and it began last quarter of 2023 onwards. 

Indian steel and cement players, businessline spoke to say they foresee a “substantial hit on their exports,” especially when manufacturing processes are still carbon intensive. The use of thermal power over renewables is another area of concern. 

“Right now, we report on default values. This means we need not declare actual emissions at present,” an industry source said. 

Tax Incidence 

The exact tax levy “is still under calculation,” sources said, adding that “every exporter, across segments like stainless steel, iron and steel, and cement, will surely be impacted.”

Emissions embedded in exports across these items are “significantly higher” than the present default values notified by the EU, and the industry is apprehensive that when the EU comes up with country-specific default emission numbers, it may be higher for India.

“We will reach out to ministries like commerce, steel, and others for consultations on determining carbon numbers on its own and see how it compares with the EU parameters,” a stakeholder said. 

According to an Asian Development Bank study, Asian subregions with a higher share of carbon-intensive exports to Europe, particularly Central and West Asia (including India), are more negatively affected.

“...assuming existing carbon intensities and a carbon price of €100 per tonne of CO2, the trade-weighted import tax rate equivalents of border carbon adjustments vary widely. The simple average tax rate across regions of 8.1 per cent represents a substantial cost, with the rate being relatively low in East Asia (1.7 per cent) but higher in other regions, including Central and West Asia (13 per cent), South Asia (12.3 per cent) and India (36.9 per cent),” the agency said. 

What are Default values? 

In a recent notification, the EU said that during the three first quarterly reports (Q4 CY23 and Q1 & Q2 CY24), declarants can report embedded emissions based on default values “without quantitative limit.”

From Q3 CY24 and until the end of 2025, declarants can still report emissions based on estimations. But only for complex goods, with a limit of 20 per cent of the total embedded emissions. 

Using default values would qualify as an ‘estimation’.

In a December notification, the EU clarified that declarants and exporters “should use them when they do not have or are not able to report actual emissions.” These default values will be regularly revised.

Default values released are a ‘world’ average, weighted by production volumes.

“The default values apply independently of the country of origin of the CBAM goods. From 2026 on, another set of default values will apply. Those values will be set at the average emission intensity of each exporting country, increased by a proportionately designed markup,” a Ministry official said.

Values Declared 

The EU has so far declared default values for nearly 120–130 items covering segments like hydrogen, fertilisers, aluminium, cement, iron and steel. 

There is also a detailed product-wise break-up of these values (permitted carbon emissions embedded during production). Even emissions are categorised into direct emissions (during product making) and indirect emissions. 

For instance, in the iron and steel segment, sintered ore is allowed to have a direct emission of 0.31 tonne of carbon dioxide emitted per tonne produced (tCO2e/r), while indirect emission is allowed at 0.05 tCO2e/t. The total default value thus stands at 0.36 tCO2e/t. 

Similarly, crude steel ingots have a default value of 2.75 tCO2e/t (2.52 tCO2e/t for direct emissions and 0.23 tCO2e/t for indirect emissions), while forged steel has a value of 3.27 tCO2/t (2.65 tCO2e/t and 0.62 tCO2e/t). 

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