Carbon Border Adjustment Mechanism aims for global decarbonisation: EU

The Carbon Border Adjustment Mechanism aims to treat imported goods the same as EU-produced goods to help global decarbonisation, the Director-General of the European Commission has said following a visit to India to discuss tax and custom issues.

Carbon Border Adjustment Mechanism (CBAM) is the European Union's planned tax on the carbon emitted while making goods imported from countries like India and China. The move has sparked a debate at multilateral forums, including the United Nations climate conferences, as the poorer countries fear such tariffs will harm livelihoods and economic growth.

Director-General of the European Commission, Gerassimos Thomas, led a group of officials to New Delhi to discuss tax and customs issues, with a focus on CBAM, on July 1 and 2. He met the Indian government officials and business leaders to explore the manner in which it might affect the Indian industries and explain CBAM's goals and timeline.

Thomas welcomed India's plans to decarbonise its economy, underlining the shared commitment to collaborate with India in their decarbonisation efforts, the European Commission said in a statement.

"My mission was an excellent opportunity to have direct, in-depth and meaningful interactions with my Indian counterparts and business representatives on a wide range of tax and customs matters, as well as CBAM. The importance of EU-India relations is growing. Both sides want to deepen this relationship to benefit business," Thomas said.

Through CBAM, the EU hopes to set a price on the carbon emitted to make energy-intensive products like iron, steel, cement, fertiliser and aluminum in other countries. The aim is to both reduce emissions from imports and create a level-playing field for goods made in the European bloc that must meet stricter green standards.

The developing countries are worried that the tax under the EU's planned CBAM would harm their economies and make it too expensive to trade with the bloc.

"Europe is a net importer of CBAM goods and wants to make sure that we continue importing goods with the lowest possible carbon intensity to contribute to decarbonization at a global level. CBAM ensures that imported goods are treated equally to goods produced in the EU.

"It does not discriminate and has a very gradual phase-in to give maximum predictability for investors and businesses," the Director-General said.

He said the visit was an opportunity to listen, learn and improve.

"To listen to the challenges that Indian businesses face when implementing CBAM. To learn, for example, if and how Indian Micro-Small and Medium-sized Enterprises (MSMEs) are possibly affected (as the CBAM measure normally affects only big enterprises). And to reiterate and jointly explore efforts to adapt and improve the CBAM measure," Thomas said.

Technical meetings with the Ministry of Power, including the Bureau of Energy Efficiency, will continue. An assessment report on the transition period will be submitted to the Council and the European Parliament before the end of next year and will be public, thereby providing the opportunity for Indian industry and authorities to comment and discuss with the European Commission the next steps.

Above and beyond CBAM, the visit confirmed the mutual interest in deepening the exchanges on respective carbon trading markets, pricing mechanisms and EU cooperation with India in the domain of energy efficiency, renewables and clean tech.

On taxation, the Director-General discussed with his Indian government counterparts the 'Two-Pillar Solution' to address the tax challenges of the digitalisation of the economy. India confirmed its commitment to 'Pillar 2'.

Regarding the UN Framework Convention on international tax cooperation, it was mutually agreed that the overlap between the different tracks should be avoided, the statement said.

The EU and India have had a long-standing Customs Cooperation (CCMAA Agreement) since 2004. Director-General Thomas used this week's interactions to focus on the latest challenges of customs -- cross-border e-commerce and designer drug precursors, it said.

India agreed to reinforce the bilateral ties on this and have closer cooperation on notably designer drug precursors under the existing CCMAA Agreement. Ongoing negotiations for an EU-India Free Trade Agreement (FTA) include an upgrade of this customs cooperation, the statement said.