Carbon Tax Kicks in! – Big challenge to Exports

The European Union (EU) has implemented a Carbon Border Adjustment Mechanism (CBAM) to address carbon emissions associated with imports.

· The first phase of CBAM requires importers in the EU to report the greenhouse gas emissions associated with the production of goods in iron and steel, aluminium, cement, electricity, fertiliser, and hydrogen.

· This reporting phase is voluntary until December 31, 2025, after which penalties will be imposed for non-compliance.

· Indian exporters need to provide the required emission information to their EU importers to avoid potential trade disruptions.

· The CBAM could significantly impact India’s exports to the EU, which account for about 11% of India’s merchandise trade. India exports about $64 billion worth of goods to the EU a year.

· Indian exporters are facing challenges in complying with the CBAM due to a lack of understanding of the regulations and the absence of a domestic carbon pricing policy.

· Sectors covered under CBAM include iron ore and concentrates (19.9%), steel products (20%), iron and steel (31.4%), aluminium products (27.7%), cement (6.1%), and fertiliser (0.7%) -% in brackets representing share of exports to EU – in sum aggregating to $ 8.2 bn. of exports.

· 25% of Engineering exports, the largest contributor to India’s exports, presently around $ 1.51 bn, could be significantly affected by the CBAM.