Interministerial group examines impact of EU carbon tax on India’s exports

An interministerial group is reviewing the European Union’s (EU) decision to impose a carbon tax on certain commodities such as steel and aluminum as it would have some impact on India’s exports to the region, a senior government official said on Monday.

Director-General for Foreign Trade (DGFT), Santosh Kumar Sarangi, said there are seven goods on which the EU has imposed carbon tariffs.

For India, only two sectors, steel and aluminum, are likely to be affected by the new tax while the impact for the rest is minimal as India does not export these commodities to the EU, he told reporters here.

“But it will definitely have an impact to some degree. The extent to which it can be mitigated, the extent to which our industry can adapt, the extent to which there can be mutual recognition between testing and certification bodies – these are all areas where the inter-ministerial group is coordinating.” , he said .

The trade secretary and many other ministers are discussing how the issue could be tackled, he added.

As for the calculation of the monetary impact of this decision on India, it is still under investigation, Sarangi said.

Giving an example, he said the EU has mandated different mechanisms for collecting the tax on steel produced in electric arc furnaces and blast furnaces. The tax will be different for both mechanisms.

So how much steel is made in these two ways? This separation has to be made and it will take time.

Another official said to what extent this is consistent with World Trade Organization (WTO) norms that it is all “we talk”.

From October 1st of this year, the EU will introduce the CO2 border adjustment mechanism (CBAM). CBAM will result in a 20 to 35 percent tax on selected imports into the EU from January 1, 2026.

According to business think tank Global Trade Research Initiative (GTRI), India’s iron, steel and aluminum exports to European Union countries will be subject to special scrutiny under the mechanism from October 1.

From January 1, 2026, the EU will start levying carbon taxes on every shipment of steel, aluminium, cement, fertilisers, hydrogen and electricity.

In 2022, 27 percent of India’s $8.2 billion worth of iron, steel and aluminum products exports went to the EU.

Cement, fertilizer and electric power are other products affected, but India exports these products to the EU in negligible amounts.

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