After CBAM, exporters need a helping hand, Pg10

Key Highlights:

• The European Union (EU) has extended its Carbon Border Adjustment Mechanism (CBAM) to imports, impacting Indian exporters.
• Starting 2026, Indian exporters of steel and aluminum to the EU will face a tax liability of 16-22% due to higher carbon emissions in their production processes.
• The EU accounts for 22% of India's overall exports of steel and aluminum.
• The CBAM aims to promote cleaner production but is viewed by some as a trade barrier disproportionately affecting developing countries like India.

Detailed Insights:

• The CBAM imposes carbon taxation based on emissions during production, favoring companies with cleaner methods.
• The United Nations Conference on Trade and Development (UNCTAD) estimates the EU's carbon tax would minimally reduce global emissions while significantly hindering developing countries' exports.
• Steel and aluminum are increasingly protected sectors in global trade, exacerbating the impact of mechanisms like CBAM.
• Besides steel and aluminum, the CBAM covers commodities like cement, fertilizers, electricity, and hydrogen, with potential for future expansion.
• The UK is also planning to introduce a similar carbon taxation system, increasing the global relevance of this issue.
• The Indian government should assist exporters through FTA negotiations with the EU and domestic policies promoting cleaner technologies.

Key Concepts Involved:

• Carbon Border Adjustment Mechanism (CBAM): A tax on imports based on the carbon emissions generated during their production.
• Free Trade Agreement (FTA): An agreement between two or more countries to reduce trade barriers.
• Carbon Taxation: A tax levied on activities that release carbon dioxide into the atmosphere.