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Business News/ Economy / India seeks Taiwan, S. Africa  backing on carbon border tax
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India seeks Taiwan, S. Africa  backing on carbon border tax

India and other developing countries will seek a postponement of CBAM until there is clarity on its compliance with the WTO rules

According to the regulation, exporters worldwide must give details of carbon emissions from 1 October. (AFP)Premium
According to the regulation, exporters worldwide must give details of carbon emissions from 1 October. (AFP)

NEW DELHI : India is in talks with South Africa, Taiwan, and several developing nations to contest the Carbon Border Adjustment Mechanism (CBAM) at the World Trade Organization (WTO), a government official said. The European Union’s (EU’s) carbon tax is estimated to impact Indian exports valued at over $8 billion annually starting in 2026.

The official said India and other developing countries will seek a postponement of CBAM until there is clarity on its compliance with the WTO rules. This comes as CBAM regulation officially took effect on 16 May. According to the regulation, exporters worldwide must give details of carbon emissions from 1 October.

Explaining the counts on which CBAM will be disputed, the official said: “We have accepted in the WTO that different geographies are at different levels of development. Especially in the context of the environment, there is an understanding that there has to be ‘common and differential treatment’. So, the basic principle of common but differentiated responsibilities (CBDR) is being compromised here," the official said.

The CBDR principle of international environmental law says that while all states are responsible for addressing global environmental destruction, they are not equally responsible. The principle, formalized at the 1992 UN Conference on Environment and Development in Rio de Janeiro, emphasizes the need to recognize the wide differences in levels of economic development between states while battling climate change.

“We are exploring ways to challenge CBAM in WTO. South Africa and a couple of other countries have been taken onboard. Taiwan officials also approached us. We may have more countries to challenge CBAM at WTO. On the other hand, we have conveyed to the EU they should treat our MSMEs (micro, small, and medium enterprises) the way they are treating their own MSMEs. So, we may get some extra transition periods for MSMEs," the official added.

The official added that both CBAM and the EU Deforestation-Free Regulation (EUDR) would be brought up and challenged during various discussions with the EU. The EU deforestation law is expected to hit Indian exports worth $1.3 billion every year and is set to come into force as early as December 2024 for large firms and from June 2025 for smaller companies.

Trade experts further explained that the carbon border tax on ‘embedded’ carbon dioxide emissions has provisions that are discriminatory as per WTO rules, and India should focus on those provisions. “EU firms are given carbon credits or allowances beyond which they have to pay for the emissions through carbon credits purchased from trading. This provision is not available for exporting nations, and translates to a subsidy to local firms," said Sunitha Raju, a professor at the Indian Institute of Foreign Trade.

Even if countries have a carbon pricing mechanism, the tax imposes a differential price between the EU emissions trading system (ETS) and other countries. This, she said, means “not recognizing other countries’ pricing mechanisms or protecting European firms through CBAM".

“If all countries agree to have strict regulation, then this problem will not arise. Any effort to discriminate can then be effectively addressed. A recent UNCTAD study shows if all countries implement regulations, then the 2030 climate commitments can be realized," she added.

The world’s first carbon tax, approved by the European Parliament in May, is expected to impact nearly 1.8% or $8 billion of India’s exports, according to an internal assessment by the commerce ministry.

CBAM empowers the 27-nation bloc to charge a Carbon Border Tax (CBT) on imports of steel, aluminium, fertilizer, electricity, cement, and hydrogen from January 2026. However, a major fear stems from the fact that the number of products will expand, and so will its impact on developing countries such as India.

In 2021, steel exports at $4.1 billion and aluminium at $2.7 billion were India’s 5th and 7th largest exports to the EU.

According to a Reserve Bank report, India’s contribution to global emissions of greenhouse gases has been limited, although it increased between two four-decade periods: 1950-1990 and 1991-2020.

Its share of consumption-based emissions is, however, significantly lower than production-based emissions vis-à-vis major developed countries.

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Published: 16 Jun 2023, 11:06 PM IST
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