EU's Carbon Border Adjustment Mechanism to Impact India’s Exports with New Tax

The European Union's Carbon Border Adjustment Mechanism (CBAM) will impose a 25% tax on energy-intensive goods exported from India to the EU, affecting sectors like aluminum and iron. The tax aims to level the environmental playing field but is seen as a burden by developing nations, potentially affecting India's economic ties with the EU.

The European Union's Carbon Border Adjustment Mechanism (CBAM) will impose an additional 25 percent tax on energy-intensive goods exported from India to the EU, a new report revealed on Wednesday. This tax burden represents 0.05 percent of India's GDP, according to the report titled 'The Global South's response to a changing trade regime in the era of climate change' by the independent think tank Centre for Science and Environment (CSE).

CBAM is the EU's proposed tax on energy-intensive products, such as iron, steel, cement, fertilizers, and aluminum, imported from countries like India and China. The tax is based on the carbon emissions generated during the production of these goods. The EU argues that this mechanism creates a level playing field for domestically manufactured goods, which must adhere to stricter environmental standards, and helps reduce emissions from imports. However, other nations, particularly developing countries, worry this would harm their economies and make trading with the bloc excessively costly.

The move has also sparked debate at multilateral forums, including UN climate conferences, with developing countries arguing that, under UN climate change rules, countries cannot dictate how others should reduce emissions. Avantika Goswami, who leads CSE's climate change programme, said that India's CBAM-covered goods exports to the EU accounted for 9.91 percent of its total goods exports to the bloc in 2022-23. She said 26 percent of India's aluminum and 28 percent of its iron and steel exports were destined for the EU in 2022-23. These sectors dominate the basket of CBAM-covered goods shipped from India to the EU.

(With inputs from agencies.)