EU's Carbon Tax Could Cost India 0.05% Of GDP: Report

The European Union’s Carbon Border Adjustment Mechanism (CBAM) will impose an additional 25 per cent tax on energy-intensive goods exported from India to the EU, a new report said on Wednesday.

This tax burden would represent 0.05 per cent of India’s GDP, according to the report titled “The Global South’s Response to a Changing Trade Regime in the Era of Climate Change” by the independent think tank Centre for Science and Environment (CSE).

These findings are based on data from the past three years (2021-22, 2022-23, and 2023-24). CBAM is the EU’s proposed tax on energy-intensive products, such as iron, steel, cement, fertilizers, and aluminium, imported from countries like India and China. The tax is based on the carbon emissions generated during the production of these goods.

The EU argues that this mechanism creates a level playing field for domestically manufactured goods, which must adhere to stricter environmental standards, and helps reduce emissions from imports. But other nations, particularly developing countries, are worried this would harm their economies and make it too expensive to trade with the bloc.

The move has also sparked debate at multilateral forums, including UN climate conferences, with developing countries arguing that, under UN climate change rules, countries cannot dictate how others should reduce emissions.

Avantika Goswami, who leads CSE’s climate change programme, said that India’s CBAM-covered goods exports to the EU accounted for 9.91 per cent of its total goods exports to the bloc in 2022-23. She said 26 per cent of India’s aluminium and 28 per cent of its iron and steel exports were destined for the EU in 2022-23. These sectors dominate the basket of CBAM-covered goods shipped from India to the EU.

In 2022-23, the exports of CBAM-covered goods to the EU made up about one-fourth (25.7 per cent) of India’s total such goods exported globally, which is significant for the industries operating in these sectors. Currently, hydrogen and electricity are not exported from India to the EU. Of India’s total goods exported worldwide, CBAM-covered goods exports to the EU constitute only about 1.64 per cent.

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