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India's Response to EU's Carbon Border Adjustment Mechanism



  Dec 08, 2023

The EU's Carbon Border Adjustment Mechanism: India's Position and Response



Q: What is the European Union's Carbon Border Adjustment Mechanism (CBAM)?

The European Union's CBAM is a policy designed to impose a carbon price on certain imported goods to prevent carbon leakage and encourage cleaner production. It effectively acts as a carbon tax on imports like iron, steel, cement, aluminium, fertilisers, and electricity.

Q: When will the CBAM take effect, and what are its preliminary actions?

The full effect of the CBAM is set for January 1, 2026. However, starting October 1 of the current year, there are provisions that companies in carbon-intensive sectors must begin to adhere to, like reporting their carbon emissions to the EU.

Q: How might CBAM affect companies in India's carbon-intensive sectors?

Indian companies in sectors such as steel, cement, fertiliser, aluminium, and hydrocarbon production will be required to disclose their carbon emissions data to the EU. This could lead to increased export duties, estimated between 20-35%, potentially impacting India's trade competitiveness.

Q: What concerns does India have regarding the CBAM?

India's concerns are multifaceted, including potential trade flow disruptions, increased pressure on industries to reduce emissions, and the possibility of trade conflicts arising from the CBAM's imposition.

Q: How could the CBAM positively influence India?

Despite the challenges, CBAM may also drive positive change by incentivising Indian industries to adopt cleaner technologies and practices and even pave the way for India to develop its domestic carbon pricing mechanisms.

Q: What steps has India taken in anticipation of the CBAM's impact?

India is bolstering its renewable energy capabilities, making policy and regulatory changes for energy efficiency, promoting carbon credits, and engaging diplomatically with the EU to negotiate favourable terms.

Q: What is the potential financial impact of the CBAM on India?

According to estimates, the CBAM could cost India up to US$ 8 billion in exports to the EU, particularly affecting the steel and cement sectors.

Q: What broader implications does the CBAM have on global climate change efforts?

The CBAM underscores the need for a balanced approach to trade and environmental goals, advocating for a fair and inclusive transition that doesn't rely solely on taxation but also encourages global cooperation and cleaner production practices.

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