Indian officials have warned that the EU’s carbon levy could be a deal-breaker in trade talks with the bloc, after securing the promise of compensation for the costs of carbon taxes in a similar trade pact with the UK.
“We will retaliate for whatever non-tariff barriers come in,” India’s commerce and industry minister Piyush Goyal,” said at an event on Wednesday (7 May).
At a separate event on Tuesday, meanwhile, Delhi’s finance minister Nirmala Sitharaman described the EU carbon levy as a “repeat of colonialism”.
“This should no longer be the spirit with which international cooperation, international trade, can happen,” she said, adding that developing countries should be left to “green” themselves.
India’s complaints about CBAM (the carbon border adjustment mechanism) are not new. Last year it threatened to take a case to the World Trade Organization over CBAM, after accusing the EU of breaching the WTO’s non-discrimination principle.
New Delhi wants small companies to be exempted from CBAM as part of a trade deal with the EU.
Last week, Goyal and EU trade commissioner Maroš Šefčovič repeated their commitment to conclude talks on a trade pact by December. The EU Commission sees an India trade deal as being a key part of its plans to diversify its trade relations amid the threat of tariffs on EU goods by the US Trump administration.
Though the commission insists that it has no plans to scale back CBAM, the UK’s trade agreement with India, which was announced earlier this week, includes the right to retaliate or seek compensation from the UK for its industry for losses incurred due to CBAM.
Though the UK is outside the EU, it tabled draft legislation to create its own CBAM, based on the EU levy, on Wednesday.
EU Commission officials say that the levy, which is part of the bloc’s green deal laws, will push other countries to jump in and transition towards more ambitious environmental regulation. The CBAM is expected to be fully in place as of 2026.
They add that CBAM will create a level playing field for domestic EU firms, who are already required to comply with the bloc’s strict new rules on decarbonising industry.
In March, the EU executive promised to review CBAM by the end of this year but has indicated that it would be “extending the scope of CBAM to certain steel and aluminium-based downstream products” rather than looking at exemptions.
CBAM will apply to imports of a range of products, including iron and steel, aluminium, cement, electricity, hydrogen and fertilisers, which are linked to high carbon emissions. The tax will be imposed on all imports of these products to the EU if the carbon emission at the emission stage is higher than a prescribed threshold. It is expected to apply additional costs of between 20 and 35 percent.
“It (the carbon tax) will actually lead to inflation, infrastructure becoming more expensive, automobiles becoming more expensive in Europe. It will also open up a plethora of opportunities for us. Not only in Europe but also in the rest of the world,” Goyal said.
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Benjamin Fox is a seasoned reporter and editor, previously working for fellow Brussels publication Euractiv. His reporting has also been published in the Guardian, the East African, Euractiv, Private Eye and Africa Confidential, among others. He heads up the AU-EU section at EUobserver, based in Nairobi, Kenya.
Benjamin Fox is a seasoned reporter and editor, previously working for fellow Brussels publication Euractiv. His reporting has also been published in the Guardian, the East African, Euractiv, Private Eye and Africa Confidential, among others. He heads up the AU-EU section at EUobserver, based in Nairobi, Kenya.