India needs a concrete strategy to counter EU carbon tax

India needs a more creative strategy to counter the EU Carbon Limit Adjustment Mechanism (C-BAM) than trying to impose retaliatory tariffs within or outside the policy framework of the WTO.

The WTO’s dispute settlement mechanism has been inactive since former US President Donald Trump refused to cooperate with appointments to its appellate bodies. India needs to set up a carbon-trading mechanism domestically, as China has done, to avoid requiring exports to bear the cost of its carbon content and European importers to add a carbon layer to the import price.

C-BAM is an attempt to level the playing field for European players in the so-called Emissions Intensive and Trade Exposed (EITE) sectors. To begin with, five sectors are being counted: power, cement, fertilisers, iron and steel and aluminium. When the EU introduced its Carbon Trading Mechanism, EITE areas were given free allowances, which they could trade on the carbon market. This was to prevent their flying to places outside the EU, where they didn’t have to worry about carbon pricing.

Such flight would result in no net reduction in carbon emissions globally, even as industry in the EU moved elsewhere, destroying jobs, income and taxes for its member states.

To level the playing field for players who still face the pressure of carbon pricing when free allocations are phased out, C-BAM has been proposed. Incidentally, a high-level committee that worked on finding solutions to the loss of competitiveness resulting from the introduction of carbon pricing was co-chaired by Anand Mahindra, and was one of the range adjustment measures. Solutions Identified by the Committee,

Now, even from the European perspective, C-BAM is far from complete, which seeks the self-righteous satisfaction that it is doing everything it can to fight climate change, regardless of what the rest of the world does. Is. European production that seeks an external market, using a C-BAM dependent product as an input, will face a competitive disadvantage compared to a producer in a country that does not have carbon pricing.

C-BAM levels the playing field within the EU – that’s all. To compete with producers in the global market that are unaffected by carbon prices, European firms would be encouraged to set up shop in countries without carbon pricing. It would make sense for European banks to lend to such companies or their competitors outside Europe. Selective measures such as C-BAM only serve to leak carbon from some markets to others without reducing overall global emissions.

C-BAM is to start checking the carbon content of EITE imports from October, and get importers to buy carbon certificates equivalent to the European value of carbon content of imports from 2026. Countries like India must use the intervention period to be effective. A paradigm shift in the global dialogue on climate change and moving from piecemeal, local measures to holistic, coordinated, global solutions. In particular, the focus would be on sucking carbon dioxide out of the atmosphere to achieve net-negative emissions rather than fresh emissions reductions.

According to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change, the carbon budget to limit warming to below 1.5 °C above pre-industrial levels was just 500 gigatonnes (Gt), taking 2019 as the base year. A decade of growth would exhaust that budget, even with drastic cuts in emissions. The only meaningful course of action is to extract large amounts of CO2 from the air and use it as an input for economically viable processes, such as producing synthetic fuels for aircraft or petrochemicals, graphene or carbon fibre. Make

Also, setting up a national carbon trading regime would encourage the adoption of green technologies. A carbon tax could generate resources by providing tax credits to those who reduce their emissions while punishing offenders.

Climate change represents both a problem and an opportunity for a country like India. Policymakers must persuade Indian industry to take this seriously and not work around barriers such as green import tariffs in the EU, even if we recognize their flaws.