Carbon tariff may hurt European nations more than India: Officials

Govt assessing possible impact of CBAM on India vis a vis other nations

The government is studying the possible impact of the European Union’s (EU’s) Carbon Border Adjustment Mechanism (CBAM) on India vis à vis other countries, as it gears up to tackle the bloc’s move to impose a levy on imported carbon-intensive products.  

As part of a detailed assessment of the possible repercussions of the CBAM, officials believe the EU will also feel the pinch as the carbon tariff will increase inflationary pressure on the bloc. They said considering that the EU is already facing the risk of a recession, the CBAM may hurt European nations more than India.

“The EU is bringing the CBAM in a manner which will be inflationary for them. The cost of steel and aluminium in the EU will go up since (its) industry will have to match up to the standards,” a senior government official told Business Standard.

Recently, members of the European Parliament approved the mechanism to “prevent the risk of carbon leakage and support the EU’s increased ambition on climate mitigation”.

Since the CBAM will impact all non-EU nations, the government is analysing trade statistics and other details -- including whether the trade bloc is a net importer of aluminium, its suppliers that are getting affected, and how other countries are getting affected – to look for an opportunity in disguise.

“It will be crucial to assess how India gets impacted vis à vis other countries. This is a challenge and an opportunity for the Indian industry, although it is early to determine the overall and exact impact of the CBAM,” another government official said.

The CBAM’s transition phase will kick in from October, followed by the levying of a carbon tax from January 2026 onwards. According to the EU, the CBAM is a tool to put a fair price on the carbon dioxide emitted during the production of carbon-intensive goods that are entering the EU.

India, however, believes that measures like the CBAM will result in a market access issue with the EU’s trading partners, since this a case of dragging environmental issues into trade matters, especially since India, along with other nations, has already made commitments towards safeguarding the environment through commitments under multilateral environmental agreements, such as United Nations Framework Convention on Climate Change (UNFCCC) and Conference of the Parties (COP).

According to Indian officials, repercussions of the CBAM were a matter of concern, but there is no need to panic since the share of steel and aluminium exports to the trade bloc with respect to total exports is not “very high”. 

Based on an assessment by the Department of Commerce, the share of aluminium and steel exports to the EU is over 1.8 per cent (valued at $5.68 billion) of total global exports. “There will be no impact on the other sectors, such as cement, fertiliser, hydrogen, and electricity (since India does not export these products to the EU),” the official cited above said.

Last week, Director General of Directorate General of Foreign Trade (DGFT) Santosh Kumar Sarangi said that the decision on ways to deal with the CBAM is “high on the agenda” and the government is exploring various options, including raising the matter at the World Trade Organisation (WTO). Other countries have raised concerns over the CBAM at the WTO.

According to the trade policy review of Malaysia, released by the WTO last month, the southeast Asian nation said that from the angle of climate change, the implementation of the CBAM is misaligned with the UNFCCC principles, which stated that parties should cooperate with each other to promote a supportive and open international economic system that will contribute towards sustainable development.

“Malaysia is also of the view that since the purpose of the CBAM is to meet the EU's climate ambition under the UNFCCC, the EU is obliged to provide financial support, capacity building including technical support and technology transfer to developing countries in line with the spirit of the UNFCCC and the Paris Agreement,” Malaysia said in response to a question raised by India over the country’s concerns over the measure.