EU's Carbon Border Adjustment Mechanism And Its Impact On Indian Businesses

Background

The European Union is pushing ahead with its aim of reaching net-zero emission by 2050. It has agreed to introduce first of its kind Carbon Border Adjustment Mechanism ("CBAM") from 1 October 2023.¹ This will allow EU to charge tariffs on carbon intensive imports into EU from 2026.² This is aimed at sectors such as iron and steel, cement, fertilisers, hydrocarbons, electricity and aluminium. In particular, exports of steel and aluminium from India will be impacted to the tune of around US $ 8 billion. UK, US, Japan and Canada may also levy similar import taxes.

What is CBAM?

CBAM is projected as a pioneering tool to encourage producers to reduce emissions embedded in industrial production of carbon intensive goods especially those entering EU from outside it. This is aimed to be achieved by putting a price on carbon emitted during the production outside EU. Consequently, CBAM will equalise the price of carbon between domestic and imported products