Inter-Ministerial Group To Investigate Impact Of EU's Carbon Tax On Indian Exports

By Outlook Planet Desk May 16, 2023

The group is mulling over strategies to mitigate its impact and ways of enabling the industry to adapt

Inter-Ministerial Group To Investigate Impact Of EU's Carbon Tax On Indian Exports
From October 1 of this year, the EU will implement the Carbon Border Adjustment Mechanism (CBAM). AP

According to a senior government source, an inter-ministerial panel is looking at the European Union's (EU) proposal to put a carbon tax on specific products like steel and aluminium because it could have an effect on India's exports to that region.

Santosh Kumar Sarangi, director general of foreign trade (DGFT), stated that there are seven items on which the EU has imposed the carbon levy. 

According to him, only the steel and aluminium industries in India are likely to be affected by the new tax, and the impact on the other industries will be small because India does not export those products to the EU.

“But it will definitely impact to some degree. The extent to  which it can be mitigated, the extent to which our industry  can adapt, the extent to which mutual recognition of the testing and certification agencies can happen. These are all areas on which the inter-ministerial group is coordinating,” he said. 

The Commerce secretary and many other secretaries are discussing the ways in which it could be tackled, he added.

The monetary implications of this decision is still being calculated, according to him. 

As an example, he stated that the EU has specified distinct techniques for putting taxes on steel manufactured via the electric arc furnace route and via the blast furnace route. The tax will differ for each mechanism.

So, depending on how much steel is produced in these two methods, segregation will be required, which will take some time. 

The EU will implement the carbon border adjustment mechanism (CBAM) on October 1st of this year. CBAM will impose a 20-35 percent tariff on certain EU imports beginning January 1, 2026.

According to the Global Trade Research Initiative (GTRI), India's iron, steel, and aluminium exports to European Union countries will be subject to increased scrutiny beginning October 1.

The EU will begin collecting the carbon tax on each shipment of steel, aluminium, cement, fertiliser, hydrogen, and power on January 1, 2026.

In 2022, the EU received 27% of India's iron, steel, and aluminium exports worth USD 8.2 billion.

Other affected products include cement, fertiliser, and electrical energy, but India exports very little of these to the EU.