On carbon tax, not all steelmakers are on the same page

The tax, under the carbon border adjustment mechanism (CBAM), would increase costs for Indian steelmakers exporting to Europe, a key destination that is critical for their businesses. The tax has been supported by companies with major operations in Europe, such as Tata Steel.

On the other hand, steelmakers with large-scale operations in India, such as JSW Steel, the country’s biggest, feel the levy is a trade barrier.

Tata Steel, Asia’s oldest steelmaker, has sizeable operations in the UK and the Netherlands, and considers the levy vital for keeping steel manufacturing viable in Europe. “In Europe, we are already subject to a carbon tax of €80 per tonne," T.V. Narendran, the company’s managing director, told Mint recently while discussing the company’s December quarter earnings. “So, it’s only logical to say that anybody else who wants to sell steel in Europe should pay the same carbon tax. Otherwise, why would anyone want to make steel in Europe?"

Narendran said that steelmakers across Europe are investing heavily in cleaner manufacturing routes that will boost their costs. “If you’re going to invest a lot of money in transitioning to a new process route like we are in Europe, you will naturally not allow cheaper steel imports," he said.

ArcelorMittal Nippon Steel (AM/NS) India, which has one of its parent companies based in Europe, is also likely to favour the tax, people aware of the thinking within the company said. However, the company itself declined to comment.

Also, Tata Steel’s exports to Europe from India are negligible, unlike other major Indian steelmakers. The latter are opposed to the tax and say it is an unfair imposition that will hurt their competitiveness.

“We feel that any international measure which is taken should consider the economic and social objectives of countries, societies, and communities at large," Jayant Acharya, joint managing director of JSW Steel said during a recent post-earnings call with Mint. “It should not be intended to be a trade barrier, but we are afraid that in the short term, it (CBAM) can effectively become one, and we will have to monitor how much of an effect it has on decarbonization."

Jindal Steel and Power (JSPL) and Steel Authority of India (SAIL), the two other major steelmakers in India, are believed to be firmly in the opposing camp. The companies did not respond to Mint’s queries.

Indian Steel Association (ISA), an industry body representing domestic steelmakers and leading several discussions with the government on behalf of the industry, declined to comment on the subject.

Europe’s CBAM seeks to tax carbon emissions generated during the production of imported steel from 2026. This is perceived as a trade handicap for Indian steelmakers looking to export steel to the region. And so, the industry is pushing the government for a complete waiver, or at least delay the starting date of the carbon tax to help companies better prepare for it.

While reporting on carbon emissions under CBAM has already started since October, levies will start from 2026. Under CBAM, steel exporters must cut their emissions by 2.5% in the first year, and cut further every year after that, and become net-zero emitters by 2034.

Different targets have been set for every year. The current plan is to reduce emissions by 48.5% by 2030.

The issue is important since Europe is one of the important export markets for Indian steelmakers. Indian steel accounted for 30-40% of European steel imports in FY23, totalling 3.5-5 million tonnes, up from 15-20% in FY21, when it stood at 2-3 million tonnes, according to data by ICRA Ltd.

The Indian government has broached the subject with their European counterparts during their ongoing free-trade agreements (FTA). However, Mint had reported earlier that CBAM is likely going to take a backseat in these discussions in a bid to fast-track the agreements.

Incidentally, CBAM was not part of the FTA that India signed with the four-nation European Free Trade Association (EFTA) block on Sunday.

According to analysts, emissions by the top five Indian steel manufacturers stand at 2.5 million tonnes of carbon dioxide per million tonnes of crude steel produced in blast furnaces, which is 9-10% higher than the global average. It is also significantly higher than the 1.65 million tonnes of carbon dioxide emitted per million tonnes of crude steel produced in electric arc furnaces.

Following India’s target to become a net-zero emitter of carbon by 2070, domestic steelmakers have sharpened their focus on reducing their carbon footprint to 1.8-1.95 million tonnes of carbon dioxide emissions per million tonnes of steel production over the next decade.