Govt. will Protect Industry from EU’s Carbon Law: Goyal
Context: The government will take all necessary steps to protect Indian industry from any adverse impact of the European Union’s Carbon Border Adjustment Mechanism (CBAM) which mandates reporting of carbon emissions for certain exports to Europe from October 1.
About EU’s Carbon Border Adjustment Mechanism (CBAM)
- CBAM was first introduced as a part of the European Green Deal, which serves as a guide for both tax and non-tax policy initiatives in the EU to achieve its ambitious target of becoming climate neutral by 2050.
- This was followed by a proposal for a regulation on CBAM in 2021 as part of the “Fit for 55” policy package, aiming to reduce GHG by at least 55% by 2030, from the levels of 1990.
- It plans to impose a tariff/import duty on a set of carbon-intensive imports, which will have to be paid by EU importers and companies who export such goods to EU countries.
Impact of EU’s CBAM on India
- In 2022, India’s 27% of the total export in iron, steel, and aluminium products (valuing USD 8.2 billion) went to the EU.
- It will adversely impact India's exports of metals such as Iron, Steel and aluminium products to the EU, because of extra scrutiny faced under this new mechanism.
- From 1st January 2026, the EU will start collecting the carbon tax on each consignment of steel, aluminium, cement, fertiliser, hydrogen and electricity.
- The tariffs for iron, steel, and aluminium products will be raised to 20-35 percent, exceeding the EU’s agreed-upon bound tariff rate of 2.2 percent for its manufacturers at the World Trade Organization (WTO). This will increase costs resulting in the loss of billions of dollars of exports.
Conclusion
The minister’s remarks assume significance as the CBAM framework involves onerous reporting requirements forcement, iron and steel, aluminium, fertilisers, and electricity imports in the region, to start with, with additional import levies to be imposed on such carbon-intensive products from 2026.
Experts reckon Indian steel exports to Europe, for instance, could take the biggest hit from the CBAM due to the more carbon-intensive nature of production processes vis-à-vis rivals like China.
Mr. Goyal at the annual session of the Automotive Component Manufacturers Association of India (ACMA) stated that we are in a dialogue with the EU to see how initiatives like CBAM will impact Indian industry and manufacturing, and assured to protect the interests of Indian businesses.
Imp for: UPSC Prelims, UPSC GS Mains Paper III
Topic: Economics
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