India is considering asking the EU to come up with an alternate formula to calculate and levy a separate duty on products from countries which have “historically been using high per capita emissions of carbon”. It may also explore “binding commitment on technology transfer and mobilisation of finance” for mitigation action as the EU’s proposed Carbon Border Adjustment Mechanism (CBAM) takes shape.
In a recent high-level meeting held across central ministries, which also had participation by industry representatives, it was suggested that the Department of Economic Affairs, the Department of Commerce, and the Department of Revenue could “study the possibility of a border adjustment measure” in quantitative terms on the basis of historical and per capita greenhouse gas emissions.
The Ministry of Environment was asked to take up the issue of having a parity in carbon emissions calculation methods, carbon pricing parity, and also mobilisation of funds. The issue, it was suggested, could be raised at “all appropriate fora”, especially when different countries have different carbon emission standards.
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“Commerce Secretary suggested that issues of CBAM and its impact need to be taken in both bilateral negotiations and appropriately raised at multilateral forums,” the minutes of the meeting, accessed by businessline, noted.
Incidentally, the European Commission has proposed a carbon border tax on carbon-intensive goods that are imported into EU nations. This CBAM will be introduced in 2026, but reporting on carbon emission norms and standards across products exported into the EU nations will come into effect from October.
The tax is currently based on the domestic emission standards of the EU and calculates the price to be paid to excesses; and from January 1, 2026, the EU importers will have to buy CBAM certificates, corresponding to the embedded emissions above the EU Emission Trading System (EU-ETS) benchmark levels. The price of these certificates will be linked to the weekly average carbon prices at the EU-ETS.
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Seeking exemption from CBAM
At the high-level meeting, it was also suggested that the Department of Commerce should initiate dialogue with European Union on CBAM during their bilateral negotiations and seek exemption (from CBAM), seek mutual recognition agreement (MRA) for accreditation of India’s Accredited Carbon Verifiers by the EU for embedded emissions verification, establish linkage of the Indian Carbon Market with EU-ETS, and seek exemption for MSME sector.
Interestingly, the EU’s MSME sector is exempted from EU-ETS standards.
“...should take up the issue of carbon pricing with the EU during bilateral negotiations and emphasise upon the fact that coherence in carbon pricing across geographies is not tenable,” the minutes of the meeting read.
Concerns raised
At least two of India’s ministries, Steel and Mines, have expressed concerns over this proposed guideline impacting exports.
During this high-level meeting on CBAM, the representatives of these two ministries had “touched upon the possible impact of CBAM on aluminium exports” and “on iron and steel exports.”
“...CBAM compliance requirements could pull down the profits of Indian steel exports to the EU by $60 – $165 per tonne between CY 2026 and 2034” ratings agency ICRA had said in a report.
However, at present, the two ministries – Mines and Steel - have specifically been suggested to “sensitize their industry including MSMEs about the compliance mechanism and reporting obligations of CBAM “for making the Indian exports compliance ready”.