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Informist, Friday, Jan. 31, 2025

--CEA: Carbon tax norm may raise carbon emission to EU on mfg shift 

NEW DELHI – The Economic Survey for 2024-25 (Apr-Mar), tabled in Parliament by Finance Minister Nirmala Sitharaman on Friday, said that the European Union's Carbon Border Adjustment Mechanism, or carbon tax, and the European Union Deforestation Regulation "are trade protection measures garbed in the language of climate and environment" and would impact India's exports, while also hurting the capacity of developing countries to produce more carbon-efficient steel.

"The game and the end goals are the same, but the tactics keep changing," the survey, authored under the leadership of Chief Economic Adviser V. Anantha Nageswaran, said. "Labour standards, gender, democracy, emissions and deforestation, the innovative list will keep evolving with time," it added. The key sectors covered under the EU's carbon tax are iron and steel, aluminium, cement, and fertilisers and all the commodities are likely to see an impact. 

To mitigate the risks from climate change, the EU announced a phased implementation of the Carbon Border Adjustment Mechanism in October 2023. Under this, those exporting goods to the EU have to report the carbon content of the commodity, based on which they will be taxed. The carbon tax collection is expected to begin from 2026. Europe is among the top export destinations for New Delhi. India's total trade with the EU was $137.41 bln in FY24, with imports at $61.48 bln and exports at $75.93 bln. 

Once the carbon tax is implemented, the EU will also not export steel scrap to India, which is a key input for steel production. The ban on steel imports from the EU will hinder the capacity of India, along with other developing economies, to produce carbon-efficient steel. "This measure can be perceived as the EU attempting to enjoy the benefits of both sides while also imposing trade restrictions," the survey said. 

The chief economic adviser said that the carbon tax might not be able to cut carbon emissions effectively. Instead, local manufacturing by the EU could lead to higher carbon emissions within the region. "The CBAM is a non-tariff trade barrier," Chandni Raina, an economic adviser in Nageswaran's office, said at a press conference after the survey was released.

The Indian government, which is negotiating a free trade agreement with the EU, has been extremely critical of the carbon tax from the very beginning. 

Besides carbon tax, the government also criticised the European Union Deforestation Regulation. The regulation requires operators and traders to ensure that products placed in the EU market are deforestation-free, produced following the relevant legislation of the country where the product is produced, and cover the submission of a due diligence statement before placing the products in the EU.

"Today's developed countries do not conform to the standards that they expect from developing countries at a similar stage of development. But then, intellectual consistency is not really the goal here," the Economic Survey said. "...the international community must find a balance that supports both environmental sustainability and the economic development needs of developing economies and least developed countries, ensuring that multilateralism remains the cornerstone of global trade relations."  End

US$1 = INR 86.62

Reported by Priyasmita Dutta

Edited by Avishek Dutta

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