India is working on ways to manage potential losses on its European imports as the EU Carbon Border Adjustment Mechanism (CBAM) (or carbon border tax) has already become effective. India plans to ask the European Union for concessions that will help align its planned national carbon market with the bloc’s emissions trading system, Bloomberg reports.
India’s government has several proposals it plans to raise with the EU, as local exporters are faced with the issue of their products becoming more expensive and less competitive due to the Carbon Border Adjustment Mechanism. The mechanism that came into force in October 2023 aims to prevent carbon leakage by subjecting the imports of certain groups of products from developing countries with lower emissions standards to a carbon levy linked to the carbon price payable under the EU Emissions Trading System (ETS).
This way the play field will be levied for European producers who adhere to higher environmental obligations than other nations. Some countries including the UK and Australia have also started consultations on carbon border taxes to manage carbon leakage, following the EU’s example.
The proposals the Indian government wants to make to the EU include a tax exemption for small- and medium-sized enterprises, enabling credits generated by a local fossil fuel tax to be regarded as equal to Europe’s emissions allowances, and Brussels recognizing Indian-accredited energy auditors.
New Delhi plans to raise the potential impacts of the EU Carbon Border Adjustment Mechanism on domestic industries during the seventh round of negotiations on a proposed free trade agreement from Feb. 19 to 23. The country aims to prevent the negative impact from CBAM on Indian producers. A potential harmonization of India’s Carbon Credit Trading Scheme and the EU’s Emissions Trading System would be beneficial for Indian companies.
The country also imports around 4 million tons of steel to Europe annually and 40% of that will be subjected to CBAM, according to a report by rating agency ICRA Ltd. Indian exporters of steel and aluminum started collecting data on the emissions embedded in their production processes in October 2023 to share with their European trading partners. The first reporting period for that exercise will end on Jan. 31.