EU’s carbon tax: According to a research released on Wednesday by think tank GTRI, India should seriously consider levying calibrated retaliatory customs taxes in response to the EU’s plan to impose a carbon price on imports of particular industries.
A carbon border adjustment mechanism (CBAM) will be implemented by the European Union (EU) starting in January 2026. However, the requirement’s implementation begins this year in October, when companies exporting carbon-intensive products including steel, aluminium, cement, and fertiliser would need to give the EU authorities precise production information.
It claimed that the retribution tactics have a number of benefits, including quick adoption. India can quickly change its tariff rates and product listings to closely match the policies of the EU or any other partner nation. Make use of a calibrated retaliation mechanism (CRM) to respond in kind. We have done it before,” Ajay Srivastava, co-founder of GTRI, said.
When the US placed import tariffs on India’s steel and aluminium in March 2018, India retaliated by raising taxes on 29 particular US goods. With careful calculations, this retaliation made sure that India received the same amount of money from US goods as the US got from Indian steel and aluminium.
Furthermore, it’s critical to understand that CBAM is only one among a number of programmes that potentially harm Indian exports. The EU has also passed the Supply Chain Due Diligence Act (SCDDA), the Foreign Subsidies Regulation (FSR), and the Deforestation Regulation. If adopted, CRM might be utilised to lessen the effect that these schemes have on Indian exports, according to the paper.
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Mechanism to deal with EU’s carbon tax
According to the report, the implementation of a carbon tax is anticipated to disrupt international supply chains, raise trade prices, nullify free trade agreements, and place a heavy compliance burden on companies.
In order to lower the overall tax paid in the EU, the report also advised the government to designate a few existing levies as carbon taxes.
India levies import and excise taxes on natural gas and petroleum products, as well as a GST on goods including coal, steel, and aluminium. In particular for steel and aluminium, India can formally identify them as carbon taxes, the statement read.
According to this method, the carbon tax that a corporation paid in India can be deducted from the tax that must be paid in the EU, which will ultimately result in a lower overall tax obligation for the company. According to the report, “it is essential to design this scheme using internationally accepted norms to ensure acceptance by the EU.” If India and the EU sign an FTA, EU goods will enter India duty-free while Indian exports to the EU will still be subject to CBAM taxes that can range from 20 to 35 percent.
The Global Trade Research Initiative (GTRI) said that the EU’s claim that CBAM is intended to stop carbon leakage and reduce emissions is unfounded because taxing imports from around the world might not effectively address the issue of climate change.
The report titled “The Chameleon’s deception: How the EU is using the climate argument to subsidise local firms and make imports expensive?” claims that “The EU’s introduction of CBAM is seen as serving three primary purposes: protecting local industries, generating substantial revenue, and enabling a trillion-dollar subsidy initiative, even if it disrupts global trade.” said.
The practise of firms shifting production to nations with laxer environmental standards in order to avoid paying the EU’s carbon taxes is known as carbon leakage. It claimed that this goal might have been accomplished by simply charging imports from EU companies that have moved their manufacturing elsewhere. However, the EU opted to tax all imports from around the world using CBAM.
“CBAM will not lower global emissions since it merely levies high-emission commodities rather than preventing their importation. CBAM is projected to cut global carbon emissions by no more than 0.1%, according to the UNCTAD Trade and Development Report 2021. According to Srivastava, the EU needs this money to keep giving significant subsidies to its businesses and farmers. For instance, the EU budget will contribute 503 billion euros of the 1 trillion euros the European Green Deal seeks to earn over the next 10 years. According to him, the new rules might cover the entirety of the EU budget.
