Tata Steel, one of the largest steel-makers in the country, has written to the Union Steel Ministry seeking that a “safeguard mechanism”, like the Carbon Border Adjustment Mechanism (CBAM) proposed by European Union (EU), be “kept ready” to protect domestic industries against imports from countries that are not subject to carbon regulatory mechanisms.
Such mechanisms would come in the backdrop of CBAM imposition that pushes up costs of domestic steel making.
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While the company feels CBAM will help Indian mills get better realisations in European markets, it has urged the ministry to fast-track carbon market implementation in the country and consider developing a mechanism for accumulation of relevant carbon-related taxes to facilitate Indian exports.
Engaging with the EU “and other like-minded nations” to see the procedural compliances under CBAM do not act as non-tariff barriers to mills here, is another point that the steel-maker raised.
In a detailed note, addressed to the Union Steel Secretary sometime back, and accessed by businessline, Tata Steel’s Vice President of Corporate Services, Chanakya Chaudhary wrote: “If a carbon cost is applied to steel produced in India without adequate safeguards. it would result in replacement of domestic production with imports from countries without carbon cost (and potentially less CO2 efficient production).”
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The note argued that a carbon price reflective of global carbon price (EU-ETS, which is over €100/tonne of CO2) will get passed on to the final customer and it would increase the cost of India’s infrastructure build.
“Therefore, it is very critical to build in the right safeguards and have the right design of the carbon market to suit national needs. Steel industry would require safeguards to compete against imports from nations without carbon costs,” it said.
“The government needs to earmark proceeds from issuance of carbon allowances to support decarbonisation initiatives”, it added.
Export realisations
Tata Steel wrote that while CBAM levies “will pose to be additional outflow for Indian exporters”, they will also “be compensated through higher prices in the EU.”
Net Realisations will be protected as the exporters will be able to pay for the additional CBAM costs through increase in prices there. Prices in the EU market are likely to increase, since players there operate at minimal margins (3-5 per cent) and would not be able to bear costs incurred due to CBAM levies without making losses. End consumers, however, bear a small fraction of the increase in steel-making costs.
“For example, only 20 per cent of the price of automotives comes from steel, and the European consumers would be willing to pay for the marginal increase in price,” Chaudhary pointed out.