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India may compensate exporters against UK, EU carbon tax

The carbon border adjustment mechanism (CBAM) or carbon tax is expected to have an impact on India’s iron, steel, and aluminum exports worth $8-$9 billion headed into Europe and the UK.

The Centre is exploring a range of relief measures to soften the blow of the carbon tax introduced by the European Union and the UK, which includes offering compensation to exporters affected by the tax to help them remain competitive in the global markets, a government official told The Indian Express.

The carbon border adjustment mechanism (CBAM) or carbon tax is expected to have an impact on India’s iron, steel, and aluminum exports worth $8-$9 billion headed into Europe and the UK. However, CBAM has provisions to include more products with high carbon footprint going forward which could mean greater impact over the years.

“There are various options on the table to tackle carbon tax such as seeking longer transition time and repatriation of the duties. We are also looking at other collaborative mechanisms where we devise a way to come out with supportive measures to make the product more competitive. We are discussing and deliberating along these lines,” the official said.

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CBAM kicked off on October 1, 2023 with carbon emissions reporting requirements on imports at its borders. But the EU will impose the actual tax from 2026. The period between 2023 to 2026 is known as the transition time.

“Addressing these kinds of measures in an FTA is a challenge. These kinds of measures emanate from WTO provisions that we all have committed to. It allows members to take measures for the protection of human lives, plants, and health. It includes the environment as well,” official added.

Festive offer

India has already challenged carbon tax at the WTO as it believes CBAM is in violation of special and differential treatment (SNDT) provisions of the WTO that advocates longer time periods for implementing agreements and commitments for developing nations to safeguard the trade interests of developing countries.“CBAM undermines SNDT…they argue that if we follow the principle the whole objective gets defeated. But then a country like India will always argue for a longer transition time,” the official said.

Trade experts have also criticised CBAM for violating the principle of international environmental law that says that all states are responsible for aaddressing global environmental destruction yet not equally responsible. Common but differentiated responsibilities (CBDR) assumes all the more significance for India that barely contributes one-seventh of world’s carbon emission.

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“The key emissions source that the EU seeks to tackle is energy, which it imports, and which will be consumed in manufacture of these products. However, the EU creates a very different landscape in its textual proposals in the India-EU FTA. Export pricing discipline under the Energy and Raw materials chapter specifically forbids any incentives by India to its own industry to consume green energy,” Sangeeta Godbole, a former revenue officer who was part of the Indian team negotiating the India-EU free trade deal, said.

After the EU notified CBAM earlier this year, the UK this week said that its version of CBAM will come into effect by 2027. The UK government factsheet said that the UK CBAM will place a carbon price on some of the most emissions intensive industrial goods imported to the UK from the aluminum, cement, ceramics, fertilizer, glass, hydrogen, iron and steel sectors.

Both UK and EU have argued that the objective to introduce CBAM is to prevent carbon leakage which is defined by the movement of production and associated emissions from one country to another due to different levels of decarbonisation effort through carbon pricing and climate regulation.

First published on: 21-12-2023 at 19:59 IST
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