The European Union’s proposal to impose carbon tax on Indian businesses has been firmly rejected by India. The EU’s carbon tax proposal is unworkable for India as it finds them impractical and harmful to its economic interests.
The EU plans to impose tariffs on imports of high-carbon materials like aluminum, steel, and cement. It is done as a part of its strategy to achieve net-zero GHG emissions by 2050 through its carbon border adjustment mechanism (CBAM). However, India has considered this proposal as unworkable for developing economies like it. Also, this proposal will likely increase domestic market costs.
The tariffs proposed in CBAM range from 20% to 35% on the Indian export of steel and aluminum. It will be imposed starting 1 January 2026. With this potential increase in costs, there have been concerns about strained bilateral trade relations that could impact ongoing negotiations for a free trade agreement (FTA) between the two nations.
In another agreement, Australia to power India’s clean energy transition and reduce reliance on China.
As Europe is India’s 2nd largest export destination and exports in 2023 alone were around $100 billion. India urges that the EU should adhere to the 2015 Paris Agreement’s emission rules. This is because it provided developing nations with more lenient targets in comparison to developed ones.
The European Commission delegation defended CBAM by saying it is designed such that it won’t raise revenue but to drive the supply of green goods into the EU market. Moreover, they proposed India introduce its own carbon tax program to support green supply chains and maintain access to the EU market. It is highlighted that the cost of making the steel industry sustainable will burden India’s economy.
Overall, India is actively expanding its renewable energy capacity. In comparison to 2018, its carbon intensity has decreased by 3.5%. Moreover, the nation aims to achieve net-zero by 2070. Despite the progress made towards achieving their goals, India argues that this new carbon tax does not align with its economic realities.