The current concern centres around the default values set by the EU for carbon emissions in various products, including steel and cement
Indian steel and cement companies are bracing for a potential "substantial hit" to their exports to the European Union due to the bloc's new Carbon Border Adjustment Mechanism (CBAM), nicknamed the "carbon tax."
This mechanism aims to level the playing field for European companies by taxing imports based on the carbon emissions embedded in their production.
The current concern centres around the default values set by the EU for carbon emissions in various products, including steel and cement. If these values are used as a benchmark for calculating the carbon tax, Indian exports could become significantly more expensive, making them less competitive in the European market.
This potential price hike stems from two key factors:
Carbon-intensive manufacturing processes: Compared to their European counterparts, Indian manufacturers still rely heavily on methods that generate higher emissions, leading to a potentially larger carbon tax burden.
Dependence on thermal power: India's extensive use of coal-fired power plants further elevates its carbon footprint compared to countries utilising more renewable energy sources.
While Indian exporters currently enjoy a reprieve by being allowed to report default values instead of their actual emissions, this is only a stopgap measure valid until the end of 2025.
The real challenge lies ahead: starting in 2026, the EU will switch to country-specific default values based on each nation's average emission intensity. Early estimates suggest these values could be significantly higher for India than the current global averages, potentially translating to a hefty 36.9 percent "carbon tax" on Indian exports.
Recognising the looming threat, stakeholders in the Indian industry are mobilising. They are reaching out to the government to explore ways to determine their own carbon footprint and potentially negotiate with the EU to ensure a fair and accurate representation of India's emissions.
With the clock ticking, Indian exporters have a limited window to modernise their manufacturing processes and adopt cleaner technologies to reduce their carbon footprint. This holds environmental significance and is crucial for maintaining their competitiveness in the European market under the looming shadow of the "carbon tax time bomb."