EU carbon tariff: India preps for a fight at WTO

New Delhi: India is considering a challenge against the European Union's Carbon Border Adjustment Mechanism (CBAM) at the World Trade Organization, ET has learnt. CBAM mandates non-EU steel producers to report direct and indirect emissions.

New Delhi sees it as a unilateral move that would be detrimental for its iron and steel, cement, aluminium, electricity, and hydrogen sectors, and is eyeing multiple actions to deal with it, officials said.

"We have been getting ready for a dispute. Multiple actions are being taken at all levels that also includes bilateral engagement," said one of the officials familiar with the deliberations.


CBAM will lead to imposition of 20-35% tax on select imports into the EU from January 1, 2026. From that date, EU importers will have to declare and purchase CBAM certificates to cover the emissions associated with producing imported steel products. The EU tax drill began on October 1, 2023, when non-EU steel producers began reporting direct and indirect emissions.

'Seeking Legal Opinion'
"It is a unilateral action, and we are seeking legal opinion on what can be done," the official added.

India's exports to the EU in FY24 amounted to $75.9 billion, with mineral fuels, electrical machinery and iron and steel being the top products.

As per the Council on Energy, Environment and Water, India's exports of around $37 billion, which is approximately 43% of the country's exports to the EU as of 2022, are likely to be impacted due to the bloc's various non-tariff measures including the CBAM.

New Delhi has insisted that measures taken to combat climate change, including unilateral ones, should not constitute a means for arbitrary or unjustifiable discrimination or a disguised restriction on international trade. There is a growing view that these are newer kinds of barriers aimed at restricting developing country exports in the garb of green measures.

India has told the WTO that carbon border measures are being selectively applied to "trade-exposed industries" such as steel, aluminium, chemicals, plastics, polymers, chemicals and fertilisers, reflecting the underlying competitiveness concerns driving such measures.

The US has also approved an Inflation Reduction Act to establish green technology industries.

Trade experts said that a legal challenge would be crucial as the UK has also announced plans to implement its own CBAM from 2027.

"Countries are resorting to unilateral green measures to protect their own industry which will impact developing countries like us. Developing countries should get together to retaliate and combat the threat," said a Delhi-based trade expert.