In a polite but firm rebuff India has told EU policy makers that their proposal to tax Indian businesses is both impractical and detrimental to its economic interests
India has cold shouldered the European Union’s proposal for a carbon tax on its industries, deeming the plan both impractical and detrimental to its economic interests. The EU's proposal, part of its carbon border adjustment mechanism (CBAM), aims to impose tariffs on high-carbon imports such as steel, aluminium, and cement, as part of its strategy to achieve net-zero greenhouse gas emissions by 2050.
India has dubbed the proposal as "unworkable" for developing economies like India according to a Reuters report, which quoted India’s Economic Affairs Secretary, Ajay Seth. Its solution doesn’t fit our needs, Seth said.
India has communicated its position to the EU, criticising the CBAM as unfair and likely to increase domestic market costs.
The European Commission’s delegation, led by Gerassimos Thomas, defended the CBAM, suggesting it is designed not to raise revenue but to drive the supply of greener goods into the EU market. They proposed that India could introduce its own carbon tax to support greener supply chains while maintaining access to the EU market.
However, Seth highlighted that the cost of greening the steel industry would place a significant burden on India's economy. "With our income levels being one-twentieth of Europe’s, can we afford such high prices? No, we can't," he asserted.
The proposed CBAM could see tariffs ranging from 20 percent to 35 percent on Indian exports of steel and aluminium starting January 1, 2026. This potential increase in costs has raised concerns about strained bilateral trade relations and could impact ongoing negotiations for a free trade agreement (FTA) between India and the EU.
As the EU remains India's second-largest export destination, with nearly $100 billion in exports in 2023, the standoff over the carbon tax could have significant repercussions. India urges the EU to adhere to the emission rules set out in the 2015 Paris Agreement, which granted developing nations more lenient targets compared to their developed counterparts.
India is actively expanding its renewable energy capacity and has reduced its carbon intensity by 3.5 percent since 2018, with a target to achieve net zero emissions by 2070. Despite progress, the country argues that the proposed EU carbon tax does not align with its economic realities.