EU open to allowing India collect carbon tax

Subject :Economy

Section: External sector

In News: EU ready to consider India’s proposal of domestic collection of the carbon tax to be levied by the EU.

Key Points:

The EU is ready to consider India’s proposal of domestic collection of the carbon tax that the bloc plans to levy on Indian steel, aluminium and cement shipments under the Carbon Border Adjustment Mechanism (CBAM) from January 1, 2026.
What has India proposed?
- India has proposed that it will collect the carbon tax that the EU is implementing under the CABM.

What is the EU response to the proposal?

EU has not rejected India’s proposal on collecting the carbon tax levied by it under the CBAM as it is not a revenue generating mechanism for EU.
According to EU the collection of carbon tax by India also achieves the objective of adding to the cost of the exporters of carbon intensive products, which ultimately is what they want.
While the items covered under CBAM include cement, iron & steel, aluminium, fertilisers, electricity and hydrogen, the hardest hit sectors in India could be iron & steel and aluminium, followed by cement.

Government plan:

The government wants to ensure that the carbon tax levied on Indian products is as low as possible.
It wants to have a fully functional Carbon Credit Trading System in place by January 1 2026, and get it recognised by the EU, so that compliance can be established for most exporters
India wants to use the clause of equivalence existing in CBAM to get the carbon taxes already embedded in the country’s taxation system recognised.
The EU’s equivalence clause could mean that if a country is already charging its industry some amount of carbon tax, such as India’s taxes on petroleum and coal, then that can be recognised while calculating the carbon tax on an exporter from that country.
Additionally, with the Bureau of Energy Efficiency under the Ministry of Power coming up with its carbon credit trading system, a proposed system equivalence can be reached with the EU’s Emissions Trading System (ETS).
India will also insist that the principles of common but differentiated responsibility (CBDR), which is also part of the Paris Agreement on climate change, be followed while calculating taxes under CBAM

Implementation of CABM:

With the CBAM being in the transitional phase that started from 01st Oct 2023, exporters need to specify the quantity of CBAM goods shipped and the embedded emissions.
This has already started, further the shippers will have time till January 2024 to submit the first quarterly report.

Exporter’s concern:

Under CBAM, a lot of information on products and processes will need to be shared.
These would include sensitive information about business practices that can’t be revealed to third parties as it could hurt a company’s competitive advantage. India would need clarity on what be the integrity of data protection around CBAM