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Costs of a levy

  • Published
    12th Jan, 2024

Context:

The EU's carbon tax needs scrutiny, taking into account industry concerns about the challenges in achieving a green transition.

Concerns Regarding EU's Carbon Adjustment Mechanism (CBAM)

  • Data Submission Burden: Indian industry expresses immediate concerns about CBAM requiring exporters to submit nearly 1,000 data points, fearing loss of competitive advantage and compromising trade secrets.
  • Tariff Impact: Industry estimates suggest EU tariffs could raise costs by 20 to 35%, posing a serious challenge as more than a fourth of India's iron, steel, and aluminium exports go to the EU.
  • Sensitive Trade Issues: The data-sharing process is deemed burdensome, and there's apprehension about the compromise of sensitive trade secrets during the exercise.

Navigating CBAM's Definitive Phase

  • Tariff Imposition Challenges: With tariffs expected in 2026, a significant effort is needed to contest CBAM's protectionist nature, with India questioning it at the WTO.
  • Global Collaboration: India must collaborate with affected countries to challenge CBAM at climate fora, considering its imposition in an unequal context of rich countries not fulfilling clean technology accessibility commitments.
  • Alternative Funding Suggestion: Experts propose imposing the tariff but directing funds to developing countries instead of the EU's corpus, requiring tough negotiations.

Future Challenges and Industry Responses

  • Potential Global Adoption: Apprehensions arise about other economies following the EU's lead; the US is considering a similar levy. Tata Steel and JSW prepare for challenges with ambitious decarbonization targets.
  • Technological Hurdles: Abating emissions in the steel sector is challenging. Small companies may struggle with costly technological interventions, necessitating support from governments and financial institutions.
  • Domestic Green Transition: The government considers a levy akin to CBAM for domestic green transition funding, raising uncertainties about EU cooperation and tariff withdrawal.
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