The work around the CABM proposed by the EU is unlikely to mitigate the financial burden of Indian exporters, says the think tank GTRI
The European Union’s proposal for India to implement a local carbon tax to offset its carbon border duties will not substantially benefit Indian exporters, according to the Global Trade Research Initiative (GTRI). The think tank highlighted that such a tax would not significantly alleviate the financial burden faced by Indian firms due to EU regulations.
GTRI explained that carbon prices are typically tied to a country’s economic context.
Therefore, merely adding a local tax would not meaningfully reduce the overall tax load. Currently, the global average carbon price is around $6 per tonne of CO2. Should India introduce an Emissions Trading System (ETS) or set a domestic carbon price, it is expected to be below $10 per tonne.
Despite this, Indian companies will still be liable for paying the EU’s carbon border adjustment tax, which amounts to $51.3 per tonne of CO2 under the Carbon Border Adjustment Mechanism (CBAM). The EU's CBAM, set to take effect from January 1, 2026, will impose a 20-35 per cent import tax on goods from seven carbon-intensive sectors, including steel, cement, and aluminium. Starting in October of this year, Indian firms in these sectors will need to provide detailed carbon emissions data to the EU.
India has vehemently opposed the CBAM and is currently in negotiations with the EU. During a recent meeting, the EU delegation, led by Gerasimos Thomas, proposed that India adopt its carbon tax to foster greener supply chains and maintain market access. While the EU’s CBAM regulation does offer tax reductions for products already taxed for carbon emissions domestically, GTRI warns that implementing a higher carbon price in India could have several negative consequences for its economy and exporters.