The European Union‘s (EU) Carbon Border Adjustment Mechanism (CBAM) will not only disrupt global trade but also have a negligible impact on climate, as per the report released by the Global Trade Research Initiative (GTRI).

The carbon tax is also expected to significantly challenge India‘s metal industry the think tank said that as much as 27 per cent of India‘s iron, steel, and aluminium exports worth $8.2 billion went to the EU in 2022.

Electricity, fertiliser, hydrogen, and cement will also attract carbon tax, but in this case, India will not be affected as it does not export these products to the EU.

The CBAM will be implemented in four phases. Starting October 1, there will be a 27–month transition period.

Exporters will not have to pay tax but will have to share details of the carbon content of aluminium, steel, and other covered products with the respective EU–based importers. This data will be shared with the European Commission.

From January 1, 2026, the EU will start collecting carbon tax on each consignment of steel and aluminium. By 2034, all goods and materials imported into the EU will be taxed under the mechanism.

This will push up tariffs for iron and steel as well, as aluminium products to 20–35 per cent, up from the average 2.2 per cent bound tariff rate agreed upon by the EU for its manufacturers at the World Trade Organisation (WTO). “High tariff walls will disrupt world trade,” the think tank said. According to the EU, the CBAM is a tool to put a fair price on the carbon emitted during the production of carbon–intensive goods that are entering the EU.

The trade bloc also wants to encourage cleaner industrial production in non–EU countries. A carbon tax is not India-specific.

The think tank has suggested the government set up a task force to prepare administrative ministries and industry to meet the challenge of the carbon tax.

The Ministry of steel and Mines can educate firms to meet the October 1 deadline. “(The government should) factor in the impact of the CBAM in FT A negotiations with the UK and EU. Even if both agree to zero tariffs under the FTAs, the CBAM will ensure that while EU goods enter India at zero tariffs, Indian goods will pay very high CBAM tariffs.”

– Credits: GTRI and FIEO Intratrade. 

India expects its proposed free trade agreement (FTA) with the European Union to be a “game–changer“ and is looking forward to securing a mutually advantageous conclusion to the negotiation process for the pact within a “short planned timeline“, External Affairs Minister said.

In an address at an event at the Confederation of Indian Industry (CII), the Minister also noted that both Europe and India can strengthen each other‘s strategic autonomy by reducing dependencies, cooperating on critical technologies, and restructuring their respective supply chains.

“We expect the India–EU FTA will be a game–changer for the India–EU relationship. We look forward to a mutually beneficial, mutually advantageous conclusion to the negotiation process within a reasonably short planned timeline,” said the Minister.

In June 2020, India and the European Union restarted negotiations for the long–pending trade and investment agreement after a gap of over eight years. Since being launched in 2007, talks surrounding the agreement have been hampered by fundamental differences on key issues.

In regards to this, the External Affairs Minister said that “India‘s new approach to trade agreements addresses issues of non–tariff and behind–the–border barriers, quality standards and related benchmarks…with like–minded partners, we have demonstrated in recent years a fast–track change in our FTA negotiation processes. FTAs with the UAE and Australia were concluded in record time.” Behind-the-border barriers are non–tariff discriminatory trade barriers within a country.

“Europe and India can strengthen each other‘s strategic autonomy by reducing dependencies; cooperating on critical technologies; and ensuring supply chain restructuring.

The India–EU FTA is, therefore, our very important goal,” said the External Affairs Minister. She additionally touched on the recently unveiled Trade and Technology Council (TTC), stating that it would provide structure and strategic guidance to enhance the partnership between both entities.

It is expected that TTC will facilitate the exchange of critical technologies such as artificial intelligence, quantum computing, semiconductors, and cyber security. This marks the second such technology partnership between the EU and a Western nation following one with the United States in 2021.

Finally, the External Affairs Minister highlighted that “India‘s relations with Europe [are] stronger and deeper than ever before” – illustrated by this event itself – making clear that “the business communities of India and Europe have a large stake and an enabling role in this transformation.”