CBAM vs. FTA: India’s balancing act to tackle climate costs and trade deals with EU

India is walking a razor’s edge. On one side, the promise of a Free Trade Agreement (FTA) with the European Union (EU) — a gateway to stronger economic ties. On the other, the looming shadow of the Carbon Border Adjustment Mechanism (CBAM) — the EU’s carbon tariff that threatens to squeeze India’s exports of steel, aluminium, and cement.

Image Source: European Council on Foreign Relations

While several countries, including China, South Africa, Russia and Brazil, have taken the EU to the World Trade Organisation regarding CBAM, rather commonly known as ‘carbon tax’, India is yet to officially take any step mostly as both the parties are on the path of negotiation for trade tariff exemption.  

However, India’s Finance Minister, Nirmala Sitharaman, and Commerce and Industry Minister, Piyush Goyal, have repeatedly referred to the carbon tax as an ‘unfair’ measure. They argue that it violates the principle of ‘common but differentiated responsibilities’ (CBDR) outlined in multilateral climate negotiations. This principle specifies that while all countries share the responsibility to combat climate change, this responsibility is not equal and varies based on each country’s level of economic development.

Similarly, silence so far doesn’t mean surrender. The country is also on track to raise the effects of the much-discussed CBAM, which will potentially slap a 30 per cent tariff on imports of carbon-intensive products, including aluminium and steel. 

The pointers are effectively to be discussed during the two-day visit by the President of the European Commission, Ursula von der Leyen, and 21 EU Commissioners to India, beginning Thursday.

Addressing the issue, EU officials have revealed that the concerned apex body has acknowledged India’s ‘specific concerns’ about enforcing the CBAM — the bloc’s means to levy taxes on imports of specific carbon-intensive commodities — and is keen to address them. While some of the concerns may be “illegitimate”, as the CBAM is a WTO-approved effort, the EU is committed to addressing all worries and sharing its experience to help in the implementation, an EU official said.