European Union’s carbon tax is arbitrary, a barrier to trade: FM Sitharaman

“India is investing where it needs to. You [EU] have unilateral measures like CBAM that will harm our industry. The CBAM is unilateral and arbitrary, and there’s no level playing field with such measures,” the minister said. However, she clarified that “it certainly won’t escalate to the level of affecting free trade agreement (FTA) negotiations, but we will continue to voice our concerns,” in response to a question on whether the issue will impact ongoing FTA talks. India and the EU are currently in the process of discussing a trade pact.

The minister’s comments come at a time when India, last month, decided to retaliate against the European Union’s steel tariffs, which India informed the WTO have resulted in trade losses amounting to $4.41 billion between 2018 and 2023. New Delhi notified the WTO that the proposed suspension of concessions will take the form of an “increase in tariffs” on selected products originating from the EU.

India’s retaliation follows the EU’s decision to extend safeguard duties on steel imports for the second time. The duty, originally set to expire in June this year, was in the form of a Tariff Rate Quota (TRQ), and with the latest extension, the safeguard will have been in place for eight years.

According to industry estimates, the EU carbon tariffs could raise the costs of Indian exports by 20 to 35 per cent, as more than a quarter of India’s exports of iron, steel, and aluminium in 2022 were headed for the EU. The Indian Express reported in January that the Indian industry is concerned about the CBAM clause, which requires exporters to submit nearly 1,000 data points about their production methods.

Brussels argues that this requirement is necessary to gather information on carbon footprints, but Indian exporters fear it could erode their competitive advantage. The industry claims that, in addition to being a burdensome process, the data-sharing could expose sensitive trade secrets.

The minister said that other environment-related trade regulations, such as the EU’s Deforestation Regulation, could affect countries like India that are complying with their Nationally Determined Contributions (NDCs).
“These initiatives could disrupt supply chains and increase the transition costs that countries are already facing,” she said.

Notably, facing pushback from countries like the US, Indonesia, Brazil, and India, the European Commission last week proposed to delay the implementation of the controversial European Union Deforestation Regulation (EUDR) by one year.

Discussing other measures India has implemented to advance the green transition, the minister highlighted the Production Linked Incentive (PLI) scheme for 13 sunrise sectors, which include green energy and hydrogen missions.

“The budget is not constrained when it comes to promoting green sectors. We are encouraging common citizens and households with schemes like the PM Surya Ghar Muft Bijli Yojana. We are on track to meet the 2070 target, especially with milestones such as 2030,” she said.

Sitharaman added that the government is exploring various new blended finance options. “The environment is conducive for funding green projects in India. If this momentum continues, achieving the 2070 goal is possible,” she said.