Centre considers compensation for exporters hit by UK, EU carbon tax

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Last Updated23/12/2023

The Indian government is considering various relief measures to mitigate the impact of the Carbon Border Adjustment Mechanism (CBAM).
Introduced by the European Union (EU) and the UK, it is expected to affect India's iron, steel and aluminium exports worth $8-$9 billion.

CBAM is part of the “Fit for 55 in 2030 package", which is the EU’s plan to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels.
It is a policy tool aimed at reducing Carbon Emissions by ensuring that imported goods are subject to the same carbon costs as products produced within the EU.
Both argue that CBAM aims to prevent carbon leakage, the movement of production and emissions from one country to another
CBAM came into effect on October 1, 2023, while the actual tax imposition by the EU is set for 2026.
The UK has announced its version of CBAM, effective by 2027.

To support affected exporters and maintain global competitiveness, the government is exploring compensation options.
Possible measures include seeking a longer transition time, repatriation of duties and collaborative mechanisms to enhance product competitiveness.

India has challenged the CBAM at the World Trade Organization (WTO), arguing that it violates special and differential treatment (SNDT) provisions.
- The provisions advocate longer time periods for developing nations to implement agreements.
Addressing such measures in Free Trade Agreements (FTAs) poses challenges.

Trade experts criticize CBAM for potentially violating the principle of international environmental law.
- The law states that all states are responsible for addressing global environmental destruction yet not equally responsible.
Common but differentiated responsibilities (CBDR) assumes all the more significance for India that barely contributes one-seventh of world’s carbon emission.
Concerns are raised about the EU's expectations on export pricing discipline, hindering India's ability to incentivize green energy consumption in its industry.