India’s Concerns Over the European Union’s Carbon Tax (CBAM)

As part of ongoing negotiations to finalise a Free Trade Agreement (FTA), India is raising concerns over the European Union's proposed Carbon Border Adjustment Mechanism (CBAM), which will impose tariffs on carbon-intensive imports such as steel and aluminium starting in January 2026. This carbon tax could be as high as 30% on certain products, and it will affect India's exports to the EU, especially metals and other goods that are carbon-intensive.

What is CBAM?

• CBAM is a carbon tax that the EU plans to impose on goods imported from countries that have less strict environmental regulations.
• The tax targets products that produce high carbon emissions during production, such as steel, aluminium, cement, fertilizers, and electricity.
• It will start in January 2026, but exporters must begin providing data on their carbon emissions from October 2023.

India’s Concerns:

• Unfair Measure: India views CBAM as unfair because it believes it violates the "common but differentiated responsibilities" (CBDR) principle of climate negotiations. According to CBDR, countries with different levels of economic development should share responsibility for climate change, but not equally.
  • The EU’s position is that CBAM complies with World Trade Organization (WTO) rules, as it is an extension of EU domestic regulations to international trade.
• Data Privacy: Indian exporters have raised concerns about the data requirements under CBAM. The EU demands over 1,000 data points from companies to comply, which many small and medium enterprises (SMEs) in India cannot provide.
• Trade and Environmental Issues Should Be Separate: India argues that environmental issues like carbon taxes should not be tied to international trade policies.
• Global Reaction:
  • Several countries, including China, Russia, Brazil, and South Africa, have already raised concerns at the World Trade Organization (WTO) about CBAM.
  • India has not yet filed a formal complaint at the WTO but is actively discussing other trade agreements, including a Free Trade Agreement (FTA) with the EU. The carbon tax issue is a major sticking point in these negotiations.

Impact on India’s Exports:

• India exports a large amount of goods to the EU, particularly metals like steel and aluminium. These exports are expected to be heavily impacted by CBAM, with tax rates of 20–35% on affected products.
• 2022-23 Exports: India exported goods worth $75 billion to the EU, and over 15% of its total exports go to the EU. Key sectors like metals, textiles, and chemicals will face increased tariffs under CBAM.
• If CBAM applies to more products, 43% of India’s total exports to the EU (around $37 billion) could be at risk.