The EU's suggestion that India could bypass its carbon tax by imposing a similar levy locally is unlikely to alleviate the financial burden on domestic players, as they would still owe the duty for their exports to the European Union, think tank GTRI stated on Wednesday.
According to the Global Trade Research Initiative (GTRI), carbon prices are typically pegged to a country's economic conditions, so introducing a local tax wouldn't substantially lower the overall tax load.
The EU's capability to bear high carbon prices contrasts sharply with the economic realities of developing countries like India, they noted.
Presently, the global average carbon price hovers around USD 6 per tonne of CO2. Should India establish an Emissions Trading System (ETS) or a carbon price, it would likely be under USD 10 per tonne of CO2.
Despite this, Indian firms would still be required to pay the EU the difference, which amounts to USD 51.3 per tonne of CO2, under the Carbon Border Adjustment Mechanism (CBAM).
The EU plans to enforce the CBAM, or carbon tax, starting January 1, 2026. However, beginning this October, companies in seven carbon-intensive sectors, such as steel, cement, fertilizer, aluminum, and hydrocarbon products, must report their carbon emissions data to the EU.
GTRI warned that the fully implemented EU-CBAM would impose a 20-35% import tax on Indian firms. Additionally, the domestic industry would be compelled to disclose all plant and production details to the EU.
"Large firms might need to operate dual production lines one costly but greener line for exports to EU countries and a regular line for the rest of the world. CBAM will significantly disrupt global trade," GTRI highlighted.
During a recent meeting, an EU delegation led by Gerasimos Thomas, Director-General for Taxation and Customs Union of the European Commission, suggested that India implement its own carbon tax to foster greener supply chains while maintaining access to the European market.
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