How India could benefit from US probe into EU's carbon pricing mechanism, Pg12

Key Highlights:

• The United States Trade Representative (USTR) has initiated a probe into the European Union's Carbon Border Adjustment Mechanism (CBAM), seeking public comments from American businesses.
• The CBAM is a carbon pricing mechanism requiring EU importers of specific goods like metals, cement, and fertilisers to declare embedded emissions.
• India could benefit from this US probe due to a 'Forward-Most Favoured Nation' Clause (MFN) secured in its trade deal with the EU.
• This clause could grant India similar concessions that the EU might offer the US regarding CBAM implementation.
• India's metal exports, particularly iron, steel, and aluminium, are estimated to face a 20-35% tax under CBAM.

EU's CBAM.jpg

Detailed Insights:

• The USTR is investigating the CBAM's impact on US small and medium-sized businesses, aiming for increased flexibility in its application.
• The EU's CBAM calculates default emission values with a punitive mark-up to encourage company-level data, which must be verified by an EU-accredited third party.
• India has been engaged in tough negotiations with the EU over CBAM, which is seen as a potential non-tariff barrier.
• The Global Trade Research Initiative (GTRI) highlighted the significant tax burden CBAM would impose on Indian metal exports to the EU.
• Indian steel manufacturers predominantly use the high-emission blast furnace route, making them vulnerable to CBAM regulations.
• India's 'green steel initiative' aims to increase steel production using scrap-based electric arc furnace technology to mitigate CBAM impacts.
• A report by the Indian Council for Research on International Economic Relations (ICRIER) noted India's limited domestic scrap availability, which is a critical bottleneck for decarbonization.

Key Concepts Involved:

• Carbon Border Adjustment Mechanism (CBAM): An EU policy imposing a carbon price on imported goods to equalize the carbon cost paid by EU producers.
• Most Favoured Nation (MFN) Clause: A principle in international trade ensuring that a country treats all its trading partners equally, granting them the same concessions.
• Non-Tariff Barrier: Restrictions on trade other than customs duties, such as quotas, import licenses, or technical regulations like environmental standards.