The government on Wednesday took stock of the readiness of the steel industry to meet the reporting obligations on carbon emissions that kick off from October 1 under the European Union’s Carbon Border Adjustment Mechanism (CBAM).
The assessment was done at a meeting was called by the Ministry of Commerce and Industry and was chaired by Commerce Secretary Sunil Barthwal. Senior officials from ministries of Finance, Department for Promotion of Industry and Internal Trade, Power, Steel and Mines attended the meeting.
From the industry Indian Steel Association, business chambers, Engineering Exports Promotion Council and some legal experts were present.
Wednesday’s session was a follow-up of a similar meeting held in May where the industry was asked to be ready for the CBAM.
Steel industry representatives said they would be in a position to provide certification on carbon emissions when required, sources said.
The government meanwhile is engaging with the EU on CBAM and the issue also came up at the first Trade and Technology Council meeting between the both sides at Brussels in May. Both sides had agreed to open a channel of communication on CBAM and dates for the meeting are being discussed, sources said.
India has sought separate carve outs for the small and medium businesses and for recognition of its Carbon Credit Trading Scheme (CCTS), which is under preparation, to determine the carbon tax liability on its exports.
“Our contention is that since the carbon footprint of MSMEs is less they should be exempted from carbon tax,” Chairman of Engineering Export Promotion Council Arun Kumar Garodia said.
If India’s CCTS is accepted then payment of tax for emissions beyond prescribed threshold will be determined on the basis of price of credits on Indian carbon exchange and not price of credits on EU ETS (Emission Trading System). This would end up reducing some burden of taxation on Indian exports.
In February India submitted a paper at the World Trade Organisation on the subject which was followed by similar papers by other countries.
The carbon tax or Carbon Border Adjustment Mechanism (CBAM) that cleared all procedural hurdles in April this year seeks to impose tax on imports of products into the EU from geographies where at production stage carbon emissions are higher than what the rules of the mechanism will prescribe.
Initially the tax is to be imposed on seven products whose production is carbon intensive – iron and steel. aluminium, cement, electricity, hydrogen and fertilizers. India would be most impacted on steel and aluminium as 27% of its exports of these two commodities worth $ 8.2 billion went to the EU.
While the tax will be imposed on imports from January 1, 2026, the mechanism will enter into the transition phase on October 1, 2023. During this period importers in the EU of seven products on which this tax will initially be imposed will just have to report greenhouse gas emissions embedded in their imports without making financial payment and adjustments.
Mis-reporting or non-reporting of data by exporters would invite penalties.
According to thinktank Global Trade research Initiative, CBAM would translate into a 20-35% import tax.
The EU has defended CBAM saying that it is WTO compatible as it is also being imposed on local companies also. However, India and other exporters to the EU see it as a trade restrictive measure.
