A concerning development for India is the European Union (EU)’s Carbon Border Adjustment Mechanism (CBAM). The policy, which intends to tax carbon-intensive products coming into the EU from 2026, is divided into two phases, with the first phase (transitional phase) kicking in from October 1, 2023. There has been constant exchange between the EU and India on the implications of the CBAM. The Commerce and Industry Minister said recently that the proposed carbon tax on imports is an “ill-conceived” move that would become the “death knell” for India’s manufacturing sector.
What is CBAM?
The EU contended, while providing context for the CBAM, that it intends to achieve the target of a 55% reduction in greenhouse gas (GHG) emissions by 2030, compared to 1990 levels, under the European Green Deal. The CBAM is part of the package planned to achieve this. Second, there is a threat to EU products being replaced by carbon-intensive imports from other countries such as India or China. The EU argues that the higher standard of environmental compliance in its domestic industries will reduce their competitiveness. Thus, it intends to impose an import duty on carbon-intensive industries from non-EU countries to meet both these objectives.
