Need To Develop A Retaliatory Mechanism To Deal With EU’s Carbon Tax: GTRI 

By Outlook Planet Desk April 17, 2023

The Indian government and industry have been advised by the Global Trade Research Initiative (GTRI) on how to lessen the impact of the EU's carbon price

Need To Develop A Retaliatory Mechanism To Deal With EU’s Carbon Tax: GTRI 
From October 1 of this year, the EU will implement the Carbon Border Adjustment Mechanism (CBAM. AP

To address the issues raised by the European Union's carbon tax, the government should develop a retaliatory mechanism that complies with World Trade Organization (WTO) standards, according to economic think tank GTRI. 

The administration was advised not to pursue any free trade agreements (FTAs) until the carbon tax controversy had been resolved.

These suggestions are among the 13 steps the Global Trade Research Initiative (GTRI) has advised the Indian government and industry to take to mitigate the effects of such taxes.

When the US put import taxes on Indian exports of steel and aluminium, India retaliated by slapping import taxes on an equal amount of US goods. In order to combat the carbon border tax (CBT), India needs to consider developing a similar programme, according to GTRI co-founder Ajay Srivastava.

Beginning on October 1 of this year, the EU will implement the carbon border adjustment mechanism (CBAM). CBAM will result in a 20–35% tax on a certain category of imports into the EU beginning in 2026.

The EU will begin collecting the 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.

Srivastava advised the domestic industry to determine the tax's financial impact, determine whether CBT will improve competitiveness with rivals, hire an auditor to draught documents for submission to the EU, increase the use of green power, and investigate the viability of switching to low-carbon technology.

The think tank advised the government to establish a carbon trading mechanism, reclassify taxes on necessities as a carbon tax, sign a new trade agreement after the CBT issue was resolved, assemble a team of energy auditors, launch an industry awareness programme, and use international fora to expose developed countries' hypocrisy regarding carbon issues.

It claimed that excessive CBT would render zero-duty free trade agreements useless.

Srivastava gave instances to support his claim that 85% of trade between India and Japan is conducted duty-free. When Japan introduces CBT, Indian products will pay high CBTs while Japanese items will enter India duty-free.

India must ask for clarification on this matter because it is close to finishing its free trade agreement with the UK. He stated that CBT should be the main topic of negotiation for any FTA with India.

According to the GTRI analysis, India does not explicitly impose a carbon tax, but it does impose import and excise duties on petroleum goods and natural gas, as well as GST on coal, steel, and aluminium.

We might think about labelling all of these taxes as carbon taxes for the steel, aluminium, and a few other industries. A prerequisite is putting in place a carbon trading mechanism. In other instances, the net impact of CBT could be reduced to zero if we are successful, according to Srivastava.

The report also recommended that a worldwide alliance be established to examine the accepted response and to expose hypocrisy as none of the developed nations intend to reduce consumption.

Energy auditors will assist the industry in calculating the carbon intensity of products, assisting in the selection of cleaner technology, and preparing records linked to emissions for sharing with importing nations.

Steel, aluminium, cement, fertiliser, hydrogen, and energy are all on the EU's initial list.

CBT is a tax that the UK wants to impose on certain products, including cement, chemicals, glass, iron and steel, non-ferrous metals, non-metallic minerals, paper and pulp, fertiliser, and electricity production.

By 2034, the list will have grown to include all products. Verify if you export these goods to the UK or the EU. The research warned the domestic business to be on the lookout for coverage of new products.

Steel, aluminium, cement, fertiliser, hydrogen, and electricity exporters from India would need to exchange accurate emission data with their counterpart EU importers beginning on October 1, 2023. The EU importers will then need to disclose the data with the CBT authorities.

The CBT requires EU importers to buy emission certificates to cover the difference between the cost of carbon emissions under the EU emission trading system and the cost of carbon emissions in the country of production, according to the report, which also recommended hiring an auditor to prepare paperwork for submission to the EU.