EU says it’s ready to work with India on carbon tax

The European Union is willing to collaborate with India in easing the administrative burden for businesses while enforcing its Carbon Border Adjustment Mechanism (CBAM), which seeks to impose tariffs on imports with a high carbon footprint entering the 27-member bloc.

The offer to resolve the issue comes after Mint reported that India is considering imposing retaliatory tariffs on EU imports in response to the carbon tax, which India said was “unjustifiable discrimination” towards developing nations.

“We are keen on continuing fruitful discussions with the government of India and Indian industry. We would like to have an open conversation in view of the common objective to reduce greenhouse gas (GHG) emissions globally, and we are ready to facilitate the understanding and implementation of the system as much as possible,” an EU official said.

The CBAM regulation provides for the possibility of signing an agreement with the EU to better understand carbon pricing in those countries. This can help to reduce the administrative burden for operators, the official added.

However, the EU’s maiden carbon tax has sparked concern among industry experts who fear it could hurt trade, especially Indian metal exports to the 27-member bloc after its implementation.

“CBAM has been finalized, and only the notification is due. From 1 October this year, all exports of steel, aluminium etc., will be monitored, and Indian exporters will declare the carbon content of these products per tonne to their importers. But from 1 January 2026, taxes will begin. This means the transition period is to get the data right. The EU’s default tax rate is 100 euros per tonne,” said Ajay Srivastava, co-founder of Global Trade Research Initiative (GTRI).

Stating that CBAM is not a trade tool nor a protectionist instrument, the EU official cited above explained that the measure has been brought to help fight climate change and will be applied in an even-handed manner in a way that does not constitute arbitrary or unjustifiable discrimination for third country producers or a disguised restriction to trade, the official added.

“It helps fight climate change via three channels: First and foremost, it reduces the risk of the European efforts to address climate change being offset by carbon leakage. Any carbon price paid by a third country producer—be it a market price from an emissions trading system (ETS) or a carbon tax is 100% deducted from the CBAM, therefore encouraging third countries to adopt similar carbon pricing policies. Third countries with the same prevailing carbon price will ensure that their producers effectively do not pay any CBAM charge at all. Finally, it can also incentivize third-country producers to reduce their carbon footprint. Any reduction of their emissions will reduce the number of CBAM certificates an importer will need to submit,” the official explained.

Defending CBAM, the EU official said that under WTO case law, members could adopt measures to protect the environment and human health and life as long as such measures fall under one of the established exceptions to GATT rules.

“These exceptions, which are quite strict as the measure would have to have a genuinely environmental (climate) and not protectionist objective, and be applied in an even-handed manner to avoid that it constitutes arbitrary or unjustifiable discrimination or a disguised restriction to trade,” EU officials added.

However, challenging the carbon tax at WTO, India, in a statement, said that any measures taken to combat climate change, including unilateral ones, should not constitute a means of “arbitrary or unjustifiable discrimination or a disguised restriction on international trade”.

The EU official further explained that the slow and progressive implementation of CBAM will allow interested companies to prepare and invest in green technologies to obtain a complete offset of the adjustment.

“On this line, the EU wishes to continue supporting worldwide decarbonization and specifically work with India through our EU-India Clean Energy and Climate Partnership, as well as through projects like the Accelerating Climate-Smart Infrastructure programme in South Asia with IFC, which will generate several hundred million dollars worth of infrastructure investment—through advisory services with the public and private sector - in India alone, particularly in the energy storage and green finance sectors,” the official added.

However, GTRI believes that CBAM will translate into average tariffs ranging from 20-35% on iron, steel, and aluminium products, from the current average 2.2% bound tariffs agreed by the EU at the WTO for manufacturers.

High tariff walls will disrupt world trade, and developing countries will suffer the most as they carry out the most carbon-intensive manufacturing. The developed country-led global value chains ensured that cleaner production occurs in developed countries while the polluting part of production takes place in developing countries, GTRI said.