India is up in arms against the European Union’s Carbon Border Adjustment Mechanism (CBAM) and European Union Deforestation Regulation and termed it as “unilateral, arbitrary and a trade barrier” that is hurting Indian industry.
Finance Minister Nirmala Sitharaman and Commerce and Industry Minister Piyush Goyal on separate occasions recently described the standards as “irrational” which would demolish the premise of the 2015 Paris climate agreement.
Faced with deaf ears to its entreaties to the EU to reconsider its decision, India last month proposed imposing retaliatory customs duties, under WTO norms, on certain values of goods imported from EU as the two sides failed to reach a consensus on the EU’s safeguard measures on some steel products.
Last year, the EU approved a plan to impose tariffs on imports of high-carbon goods, including steel, cement, and aluminum, aiming to reach net-zero greenhouse emissions by 2050. EU has been trying to convince India, China, and South Africa about the benefits of CBAM.
The Union also adopted EUDR in May 2023 seeking to prevent the import of specified goods contributing to deforestation and forest degradation in the EU market. The covered products include coffee, leather, oil cake, wood furniture, paper, and paperboard with plans to expand the product list further.
As a result, trade analysts say, the regulations could impact India’s annual exports of products like coffee, leather hides, and paperboard worth $1.3 billion.
The CBAM or carbon tax (a kind of import duty) will come into effect from January 1, 2026.
The CBAM is the EU’s tool to put a fair price on the carbon emitted during the production of carbon-intensive goods that are entering the EU and to encourage cleaner industrial production in non-EU countries.
It ensures that the carbon price for imports matches the carbon price applied to EU-produced goods, maintaining fair competition. It is aimed at cushioning the EU’s firms from competitors who can manufacture more cheaply in countries that do not subject them to a carbon price. The EU also believes that the tax would incentivise its trading partners to decarbonise their manufacturing industries.
But from India’s point of view, there are a few fundamental problems not addressed. The primary issue is that the move disregards the prior failure of wealthy countries to make good on their promises to ensure that green technologies are more accessible to developing countries, whether through extending knowledge or providing financing. What is more, developing countries are expected to bear the cost of their decarbonisation to avoid the CBAM.
This runs contrary to the spirit of the Paris Agreement which emphasises the need for the developed world to extend financial and technological support to the developing world, aiding them in their mitigation efforts.
In a report, the Centre for Science and Environment said: For India, CBAM-covered goods exports to the EU comprised almost 10 percent of its total goods exports to the EU in the year 2022-23.”
The report quoted specialists as saying: “Our estimate suggests that at a rate of €100 (or US $106) per tonne of carbon dioxide equivalent, CBAM would impose an average tax burden of 25 percent annually over and above the value of CBAM-covered goods exported to the EU by India. This is a cost that we should not have to bear.”
Similarly, the EUDR proposes that operators or traders placing specified commodities on the EU market or exporting them must prove their products do not come from recently deforested land or contribute to forest degradation. The EU’s aim is ensuring listed products in the EU do not contribute to deforestation or forest degradation apart from aiming for the reduction of nearly 32 million metric tonnes of carbon emissions annually from these commodities.
India, however, views this regulation as another form of protectionism and trade barrier.
It views the CABM as a trade barrier as it could result in tariffs of up to 35 percent on imports of carbon-intensive goods like cement, aluminum, iron, and steel from India. More than a quarter of India’s exports of these materials in 2022 were directed to the EU.
CBAM also requires exporters to provide up to 1,000 data points on production methods. Indian exporters fear that the detailed data collection could not only erode their competitive edge but also risk exposing sensitive trade secrets.
New Delhi has been unofficially trying to convince the EU to check if they meet fair trade practices. It is time the country formally takes the matter to the World Trade Organization (WTO) to challenge the legality of the two proposals under international trade laws.
Simultaneously, India has to speed up investments in clean technologies and sustainable production methods to lower the carbon intensity of its exports, align with international standards, and mitigate the impact of CBAM tariffs.
It must also explore diversifying export markets in Africa, Asia, and Latin America to reduce the potential impact of the EU barriers. Under the Make In India policy, if India begins to manufacture goods to make itself immune from such EU barriers, the country will be rid of all dependencies.
At COP28 in Dubai, UAE, Prime Minister Narendra Modi articulated India’s policies clearly: “India is striking a balance between the economy and ecology. We have 17 percent of the world’s population but contribute less than four percent of the global carbon emission.”
What he said was that for climate justice to be just, it should seek fairness in the distribution of burdens and benefits of climate change among all countries and not just a few.
Nearly two decades earlier, Modi’s predecessor, Prime Minister Atal Bihari Vajpayee echoed similar sentiments at New Delhi’s COP8: “… [O]ur per capita Green House Gas emissions are only a fraction of the world average, and an order of magnitude below that of many developed countries. This situation will not change for several decades to come. We do not believe that the ethos of democracy can support any norm other than equal per capita rights to global environmental resources.”
Both prime ministers were not raising the issue of India alone, but of the developing world entirely. They have forcefully pitted the Global South against the Global North on such occasions. Recently, Modi urged the first-world nations to reduce their carbon footprint by 2050.