The EU says it is ready to work with India on carbon tax

But the EU’s first carbon tax has sparked concern among industry experts who fear it could hit trade, particularly Indian metals exports to the 27-strong bloc, once introduced.

“CBAM has been completed and only notification is due. From October 1st this year, all exports of steel, aluminium, etc. will be monitored and Indian exporters will report to their importers the carbon content of these products per tonne. But from January 1, 2026 taxes will start. That means the transition period is to get the data right. The standard EU tax rate is 100 euros per tonne,” said Ajay Srivastava, co-founder of the Global Trade Research Initiative (GTRI).

The EU official quoted above stated that CBAM is neither a trade tool nor a protectionist tool, stating that the measure was taken to help combat climate change and that it will be applied impartially and in a way that is not arbitrary or unjustified discrimination against third-country producers or a disguised trade restriction, the official added.

“It contributes to combating climate change through three channels: First, it reduces the risk that carbon leakage will offset European efforts to combat climate change. Any carbon price paid by a third country producer – be it a market price from an Emissions Trading Scheme (ETS) or a carbon tax – is 100% deducted from the CBAM, encouraging third countries to follow similar carbon pricing policies. Third countries with the same prevailing carbon price ensure that their producers pay virtually no CBAM fee at all. Finally, it can also provide incentives for third-country producers to reduce their carbon footprint. Any reduction in their emissions will reduce the number of CBAM certificates an importer must submit,” the official explained.

The EU official defended CBAM, saying that under WTO jurisprudence, members could take action to protect the environment and human health and life, so long as such action falls under one of the established exceptions to GATT rules.

“These exceptions, which are quite strict as the measure would have to have a real environmental (climate) objective and not a protectionist one, and would have to be applied impartially to avoid constituting arbitrary or unjustified discrimination or a disguised trade restriction”, added EU officials.

However, in challenging the carbon tax at the WTO, India said in a statement that any action to combat climate change, including unilateral ones, should not constitute a means of “arbitrary or unjustified discrimination or a disguised restriction on international trade”.

The EU official went on to explain that the slow and gradual implementation of CBAM will allow interested companies to prepare for and invest in green technologies in order to receive full adjustment compensation.

“In this spirit, the EU wishes to continue to support global decarbonisation and to work with India in particular through our EU-India Clean Energy and Climate Partnership and through projects such as the Accelerating Climate-Smart Infrastructure program in South Asia with the IFC, which are doing this will generate hundreds of millions of dollars worth of infrastructure investments – through advisory services with the public and private sectors – in India alone, particularly in the energy storage and green finance sectors,” the official added.

However, GTRI believes CBAM will result in average tariffs of 20-35% on iron, steel and aluminum products, compared to the current 2.2% average bound tariffs agreed by the EU at the WTO for producers.

High tariff walls will disrupt world trade, and developing countries will suffer the most as they produce the most carbon. Global value chains led by developed countries ensure that cleaner production takes place in developed countries, while the polluting part of production takes place in developing countries, GTRI said. Source: LiveMint

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