Starting in October, domestic companies in seven carbon-intensive industries—including steel, cement, fertiliser, aluminium, and hydrocarbon products—must submit applications to the EU authorities for compliance certifications.
According to a government official, India is requesting from the European Union a mutual recognition agreement for its carbon certificates and exemptions for MSMEs in specific industries to shield the domestic economy from the burden of the EU's impending carbon tax, which would take effect in October this year.
Beginning on October 1 of this year, the EU will implement the Carbon Border Adjustment Mechanism (CBAM). CBAM would result in a 20–35% levy on a certain category of imports into the EU beginning January 1, 2026. In order to comply with the CBAM standards, domestic businesses in seven carbon-intensive industries—including steel, cement, fertiliser, aluminium, and hydrocarbon products—must apply for compliance certificates from the EU authorities starting in October.
India has requested that the EU recognise its Carbon Credit Trading Scheme (CCTS), which is being developed by the power ministry, in accordance with the mutual recognition agreement. If the EU approved the CCTS, Indian businesses would face less additional burden in the form of carbon taxes when exporting these goods.
"India is dealing with the issue both at bilateral and multilateral levels. Bilaterally, we are asking the EU to have a mutual recognition agreement with us and make a carve-out for MSMEs and, if possible, for the country, as has been done in the case of some other countries," the official said.
All these topics were discussed on Tuesday during a gathering of senior officials from various ministries, including finance, commerce, power, mining, and steel, along with business executives from the steel industry, they added. Sunil Barthwal, the secretary of commerce, presided over the meeting.
The industry was advised to prepare for this carbon tax and take action to deal with it during the meeting. According to a research from the economic think tank GTRI, the mechanism will require greater examination of India's exports of iron, steel, and aluminium to nations in the European Union beginning on October 1. The EU will begin levying a carbon tax on each shipment of steel, aluminium, cement, fertiliser, hydrogen, and power on January 1, 2026.
India exported 8.2 billion dollars' worth of iron, steel, and aluminium products to the EU in 2022, or 27% of its total exports. India and a few other nations have raised their concerns about CBAM to the World Trade Organisation (WTO) at the global level. In February, India presented a study to the WTO on the matter.
"In today's meeting, the government told the industry about what is happening on the issue at the domestic level. The industry also has certain tasks, and that includes having an MRA with the EU," the official said.
India is anticipated to bring up these concerns during the upcoming Trade and Technology Council (TTC) meeting, which will be held in Brussels on May 15–16. The TTC will have participation from Ministers of Commerce and Industry Piyush Goyal, Minister of External Affairs S. Jaishankar, and Minister of Railways, Communications, Electronics, and Information Technology Ashwini Vaishnaw.
Although the 27-member European Union (EU) claims CBAM is a component of their efforts to combat climate change, nations like India believe it to be a trade-related policy.
Domestic companies from different sectors, such as steel, are taking steps like setting up a captive solar power plant and following climate-friendly manufacturing processes to reduce carbon emissions. The government is also taking steps like afforestation and promotion of the use of renewable energy. "We are engaging both at bilateral and multi-lateral level with the EU so that our industry is not hurt," another official said.
In February, India and the EU announced the formation of a new Trade and Technology Council (TTC), which is anticipated to promote the sharing of vital technology across a variety of industries, including cybersecurity, quantum computing, semiconductors, and artificial intelligence.
The TTC agreement with India is the second such technology partnership for the European Union following the one with the US, which was finalised in June 2021.
(With inputs from PTI)