In keeping with the European Union's proposed Carbon Border Adjustment Mechanism (CBAM) principles, India is planning its own carbon tax, particularly for exports to European nations, according to a report by The Hindu Businessline (BL).
Senior officials were quoted by BL as saying that India will collect the tax proceeds itself instead of sharing them with the EU. A tax on imports or goods coming into India from the EU is also being planned. Officials are reportedly concerned about the legality of such a move if the World Trade Organisation challenges it.
Indian officials will selectively levy a tax "applicable only on EU exports affected by CBAM." The tax will thus remain within India and will be accounted for at the time of export, either through carbon credit or certification. According to the proposal, the tax will be levied only on "select products that will be exported from India to European nations."
An official told The Hindu Businessline that the constitutionality of such selective taxation is also under discussion. Indian officials have already stated that they would like the EU to return any carbon tax collected from Indian exporters. The argument presented was that the repatriated revenue would be used to fund India's climate objectives.
An official noted that the EU is not looking at the equivalence of emission reductions but at the equivalence of price. An agreement needs to be in place to ensure the EU's acceptance of such a law, he added.
The Carbon Border Adjustment Mechanism Regulation of the European Union was recently notified. It will be enforced in a transitional phase from 1 October this year, where traders will only have to provide information on the emissions embedded in their imports subject to the mechanism without paying any financial adjustment. The full implementation of CBAM is planned for January 2026, which will result in a levy on CBAM-covered imported products.
CBAM is expected to pose a significant challenge for India's metal industry, according to research by the think tank Global Trade Research Initiative. About 27 per cent of India's iron, steel, and aluminium exports, worth 8.2 billion US dollars, went to the EU in 2022.