Tariffs to carbon, the new rules shaping India’s trade, Pg8

Key Highlights:

• The EU's Carbon Border Adjustment Mechanism (CBAM), designed to prevent carbon leakage, became definitive on January 1, 2026.
• CBAM imposes a carbon-linked charge on imports of carbon-intensive products like steel, cement, aluminium, fertilizers, electricity, and hydrogen.
• India's steel and aluminium sectors are expected to be most immediately affected due to their reliance on European markets and carbon-intensive production.
• As a major importer of fertilizers, India may face indirect price pressures due to higher global fertilizer prices.

Detailed Insights:

• CBAM is distinct from traditional non-tariff measures (NTMs) because it is price-based and quantifiable, directly linking market access to carbon emissions.
• Indian exporters may need to absorb additional costs or invest in cleaner technologies to remain competitive in the European market.
• The fertilizer import bill for India is likely to increase, potentially jeopardizing the agricultural sector, farm profitability, and leading to high food prices.
• India needs to invest in clean energy, implement stricter carbon policies, and negotiate for equitable treatment in trade agreements to ease the short-run costs of carbon compliance.
• Reducing import dependence through higher domestic production and better implementation of the Soil Health Cards Scheme is crucial.
• CBAM signals a structural shift in global trade, as other developed countries consider adopting similar carbon tariff compliance policies.

Key Concepts Involved:

• Carbon Leakage: The situation where production of goods moves to countries with less strict emission constraints.
• Carbon-intensive products: Goods whose production involves significant greenhouse gas emissions.
• Non-Tariff Measures (NTMs): Policy measures other than ordinary customs tariffs that can restrict international trade.