The EU tax on exports of energy-intensive goods translates into 0.5 percent of India's GDP, hitting all its core industries, such as steel, cement, and aluminium
The European Union's new Carbon Border Adjustment Mechanism (CBAM), or a 25 percent tax on energy-intensive goods exported to the EU, places a significant cost burden on India and other developing. In terms of real money, the new tax represents 0.05 percent of India's GDP, according to a recent report by the Centre for Science and Environment (CSE).
The CBAM targets energy-intensive products such as iron, steel, cement, fertilisers, and aluminium. These goods, primarily exported by countries like India and China, will now be subject to this new tax based on their carbon emissions during production. The EU argues that CBAM aims to level the playing field for European manufacturers, who are required to meet stricter environmental standards. The goal is to reduce emissions by ensuring that imports align with the EU's climate goals.
For developing countries, including India, this mechanism raises significant concerns. Nations worry that the new tax will make it prohibitively expensive to trade with the EU, potentially undermining their economies. The issue has ignited debates at international forums and UN climate conferences, where developing countries argue that such measures might contravene international climate agreements that prevent one country from imposing emission reduction demands on others.
Avantika Goswami, who leads CSE's climate change programme, highlighted that in 2022-23, India's exports of goods covered by CBAM accounted for 9.91 percent of all the goods it exports to the EU. She pointed out that 26 percent of India's aluminium and 28 percent of its iron and steel exports were sent to the EU during the same period. These sectors are crucial to India's export economy, making the impact of CBAM particularly significant.
In 2022-23, exports of CBAM-covered goods to the EU comprised approximately 25.7 percent of India's total such exports globally. This substantial share underscores the critical role these sectors play in India's economy. At present, India does not export hydrogen or electricity to the EU. Overall, CBAM-covered goods represent around 1.64 percent of India's total global goods exports.
As the EU implements this new tax, developing countries like India brace for potential economic strain, emphasising the need for a balanced approach that considers the diverse capabilities and circumstances of different nations in the global trading system.