The EU’s Carbon Border Adjustment Mechanism calls for a well-hedged response
SummaryIndian exports will be burdened by the EU’s carbon levy, but it does have a clear principle backing it that requires us to be realistic and hedge our trade bets by decarbonizing output
Mahatma Gandhi’s observation that the world has enough for everyone’s needs but not greed is oft-cited in the context of our climate crisis. But no less relevant is his advice that we must not judge others by their worst actions and ourselves by our best principles. Evenness matters. With the EU’s Carbon Border Adjustment Mechanism (CBAM) in effect from 1 October, India’s exports of carbon-laden products to Europe—mainly aluminium and iron-and-steel—have been burdened with green reporting rules whose red-tape of data-fields to be filled is so thick, it looks like a trade barrier in itself. Annual shipments of over $8 billion are exposed to this strap-down already, but a harsher blow might be dealt three years hence, should the CBAM’s carbon levy kick in. This action by the EU looks likely to hurt our economic interests, which explains why the government might protest it as an unfair tariff at the World Trade Organization (WTO), the revival of whose dispute-settling body the G20 recently agreed upon. But, while anything that distorts trade flows must duly be put to scrutiny, we must take Gandhi’s cue and also weigh the principles cited by the EU. It will give us a realistic view of future trade dynamics and help exporters hedge their risk of green barriers.