India is likely to raise the issue of carbon tax, to be imposed by the European Union, in the WTO.

According to the minutes of a meeting held in December and chaired by senior officials of the Department of Commerce (DoC), it was decided that “DoC will raise the issue of CBAM (carbon border adjustment mechanism) in all appropriate fora of the WTO CTG / CTD / CTE / CMA.”

The said taxation will be implemented in 2026, and the transition period will begin in 2023, when importers in the EU will have to report (every quarter) the related emissions on goods brought in.

Short-term measures suggested by officials include “interventions in the Committee on Trade and Environment (CTE), Committee on Market Access (CMA), Committee for Trade and Development (CTD), Council for Trade in Goods (CTG), and coordination with like-minded members for responding to the taxation.”

businessline has reviewed a copy of the minutes of the meeting.

India is also exploring the possibility of having its own carbon border adjustment mechanism “based on per capita emissions or per capita cumulative (historical) emissions.” The Department of Revenue, in consultation with DEA, DGFT, and DoC, has been asked to look into it.

A representation by a law firm, present at the meeting, pointed out an impact on eight sectors: iron and steel, aluminium, cement, fertiliser, electricity, hydrogen, indirect emissions, and downstream products like screws and bolts.

Apart from the Commerce Ministry, officials in attendance were from ministries like the Steel, Chemicals and Petrochemicals, Power, Mines, Petroleum and Natural Gas, Fertilizers, and Department of Economic Affairs, among others.

Iron and Steel Most Vulnerable

With 15 per cent of India’s exports going to the EU, the proposed CBAM “could put Indian exporters in a spot.” Exports of iron, steel, and aluminum products—the most vulnerable sectors—from India to the EU were around $8 billion and $ 2 billion in 2021–22.

The carbon emission intensity of Indian steel plants ranges between 2.3 and 2.8 tonnes of crude steel produced, which is higher than the global average of 1.8 tonnes.

In the December meeting, the Mines Ministry “expressed concern” at standards being imposed “unilaterally,” while it quoted a study to say that “measures (like CBAM) will result in only a 0.1 per cent reduction in greenhouse emissions.”

Similarly, the Steel Ministry officials said coking coal is used as a reducing agent and “not as fuel.” “It is imperative to assess the carbon emissions industry-wise, entity-wise, and process-wise.”

Incidentally, the DEA pointed out that an alternative was the Mineral Expropriation Adjustment Tax. It has been asked to re-share the tax paper with concerned ministries.

Officials also suggested raising the issue “particularly in FTAs,” as the proposed mechanism “is certainly a market access issue.”

A follow-up meeting on CBAM preparedness, ministry-wise, is likely in February.

Concerns on carbon tax

An office memorandum, circulated amongst the concerned ministries, likened CBAM to an environmental “tax” on imports that the EU was bringing in to prevent “carbon leakage” and also reduce the price gap between imported goods (from less stringent emission regimes) and their domestic produce.

“This would impose additional import duties on certain products,” the note said, adding that “the step appears drastic,” “could pave way for fractious trade negotiations,” and “may bring back protectionism and bring back discretionary taxes.”