Stay on your toes for carbon footprints
EU will roll out the Carbon Border Adjustment Mechanism (CBAM), a price adjustment system that will be applied to certain imports based on their carbon footprint. Currently, the system will apply to iron and steel, cement, aluminium, fertiliser and electricity. It will impact Indian exports, particularly steel.
CBAM will be a reporting exercise till January 2026.
Like the EU, India must assess data, study the practical implications and account for existing implicit carbon tax, such as the coal cess, to develop options that help industry, without undermining national climate goals. Armed with data and practical experience, India and the EU must keep talking, using mechanisms such as the EU-India Trade and Technology Council to ensure that CBAM is not an impediment to trade while it mainstreams sustainability equitably and fairly. Ensuring sustainable development for all requires that trade is no longer privileged over sustainability.
But the reordering of priorities must not disregard the difference in levels of responsibility and capacity to take climate action. India and EU must ensure that CBAM is fit to plug carbon leakage and reduce the industry's environmental footprint, without becoming a barrier for developing countries.
Trade minister Piyush Goyal was spot on when he said that the focus must be on finding ways to convert 'this so-called problem of CBAM into an advantage for Indian industry'. To become the third-largest economy in the next five years will require India to address sustainability.
