India should look to develop its own version of the Carbon Border Adjustment Mechanism (CBAM) as a response to strengthen Indian industry, instead of merely complaining about the European initiative, Jamshyd N Godrej, Chairman, CII Green Business Centre and past President of CII has said.
“From a policy perspective, rather than complain about Europe, why don’t we find our own way of doing it. You can have a mirror image of CBAM in India. The concept as proposed in Europe can be remoulded to our benefit”, Godrej told businessline on Wednesday.
“Why India is saying no to CBAM is we see it as a tariff barrier. Rather than say we are opposed to CBAM, we should say what is India CBAM. This will be a better way for Indian industry to be promoted to do more on decarbonisation”.
TheCBAM is an initiative by the European Union (EU) aimed at preventing carbon leakage and promoting climate action globally.
It is essentially a carbon tariff imposed on imported goods from countries that do not have comparable carbon pricing mechanisms to those within the EU.
The goal is to ensure that imports into the EU face similar carbon costs as domestic products, thus levelling the playing field for EU industries while encouraging other countries to adopt stricter carbon emission regulations.
“The purpose of CBAM is to raise the bar for industries in Europe. The benefit if we design our own version is today everybody in India complains about imports. In such a CBAM like mechanism, you will have tariff but based on energy and carbon footprint structure. You can do something innovative. It need not be exactly what Europe has done. The idea is you want Indian industry to come up. How will it come up if there is cheap competition?”, Godrej, who is also Chairman & Managing Director, Godrej &Boyce Mfg Co Ltd noted.
CBAM as proposed in Europe primarily targets carbon-intensive industries such as cement, steel, aluminium, fertilizers, and electricity.
It works by requiring importers to buy carbon certificates corresponding to the carbon price that would have been paid if the goods were produced under the EU’s Emissions Trading System (ETS). If a non-EU producer can prove it has already paid a carbon price in its country of origin, that amount can be deducted.
Current Status of CBAM
The CBAM regulation officially entered into force on October 1, 2023, with a transition period running until the end of 2025. During this phase, importers must report the carbon emissions embedded in their products but are not yet required to pay the tariff. This period allows both the EU and its trading partners to adapt to the new requirements and establish accurate reporting mechanisms.
Starting in 2026, the full implementation of CBAM will begin, and importers will need to start paying for emissions embedded in imported products. The EU’s ambition is to gradually extend CBAM to more sectors over time, aligning with the broader goals of the European Green Deal and the EU’s 2050 climate neutrality target.
CBAM is seen as a critical tool in promoting global climate action, but it also faces scrutiny and opposition from some trading partners concerned about its impact on international trade.