EU carbon tax: Govt to shoulder 90% compliance bill of MSMEs, Pg11

Key Highlights:

• The Indian government is developing a scheme to absorb 90% of the compliance costs for Micro, Small, and Medium Enterprises (MSMEs).
• This initiative aims to mitigate the disproportionate impact of the European Union's Carbon Border Adjustment Mechanism (CBAM).
• The EU CBAM, a carbon tax on imports, became effective from January 1, 2026, for carbon-intensive goods.
• Compliance costs for each MSME unit are estimated at ₹15 lakh to ₹20 lakh annually.
• The CBAM is designed to put a price on carbon emitted during the production of goods entering the EU.

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Detailed Insights:

• MSMEs face a higher compliance burden due to a lack of technical expertise, systems, and financial resources for carbon accounting and verification.
• The CBAM regulation mandates that if actual data is unavailable, importers must use "default values" provided by the European Commission.
• These default values include mark-ups, increasing from 10% in 2026 to 30% from 2028 onwards.
• The Indian Council for Research on International Economic Relations (ICRIER) predicts a decline in India's exports of CBAM commodities to the EU.
• The iron and steel sector is expected to be most affected, with a potential 24% decline in EU imports from India.
• The United Kingdom also plans to implement its version of CBAM starting in 2027.
• India's efforts to secure concessions for its small industries in negotiations with developed countries have not been successful.

Key Concepts Involved:

• Carbon Border Adjustment Mechanism (CBAM): An EU policy imposing a carbon tax on imports of carbon-intensive goods to prevent carbon leakage.
• Micro, Small, and Medium Enterprises (MSMEs): Businesses categorized by investment and turnover, crucial for employment and economic growth in India.
• Embedded Emissions: The total greenhouse gas emissions released during the production of goods, including direct and indirect emissions.