Costs of a levy

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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