The EU’s proposed expansion of its carbon border tax could increase costs for Indian exporters, with sectors like engineering and auto components facing higher compliance and carbon-related expenses.
The proposed expansion of the European Union's Carbon Border Adjustment Mechanism (CBAM) may have significant cost implications for Indian exporters, especially those in the manufacturing sector, according to a study by the Global Trade Research Initiative (GTRI).
CBAM refers to the imposition of a carbon price on imported goods based on their embedded emissions. It currently applies to select sectors such as steel and aluminium, but may be expanded to cover a wider range of industrial products.
According to GTRI, a draft report by the environment committee of the European Parliament, the CBAM would also apply to around 180 downstream goods based on steel and aluminium products from 2028 onwards.
Currently, CBAM covers sectors such as iron and steel, aluminium, cement, fertilizers, hydrogen, and electricity. However, as per the proposal, this scheme will also cover finished and semi-finished goods.
It will result in cost implications for Indian exporters, who will have to incur additional costs in the context of CBAM, which may adversely impact their competitiveness. Engineering goods, automobile components, and machinery are some of the likely sectors that will be impacted.
According to GTRI, there will be an expectation that manufacturers will report on emissions better, trace their supply chain more accurately, and engage in low-carbon manufacturing to comply with these regulations.
Proposed changes in carbon accounting principles, such as the handling of scrap-based manufacturing, may also lead to additional reporting requirements for manufacturers.
This comes at a time when India aims to boost its exports into the European Union, one of its key markets. In addition, climate-related trade policies are becoming increasingly prevalent internationally.
While CBAM helps ensure that carbon costs are equalized between domestically produced and imported products, it increases reporting and cost pressure on manufacturers.
In the case of India, the primary concern for now would be to adapt to more stringent requirements without losing competitiveness.
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