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Inter-ministerial Panel Analysing EU's Carbon Tax Impact On India's Exports

An inter-ministerial group is looking into the European Union's (EU) decision to impose a carbon tax on certain goods like steel and aluminium.

General News
| Written By
Press Trust Of India
Carbon tax

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An inter-ministerial group is looking into the European Union's (EU) decision to impose a carbon tax on certain goods like steel and aluminium, as it would have some impact on India's exports to that region, a senior government official said on Monday.

Director General of Foreign Trade (DGFT) Santosh Kumar Sarangi said that there are seven commodities on which the EU has imposed the carbon tariff.

For India, only two sectors of steel and aluminium are likely to be impacted by the new tax while for the rest the impact is minimal as India does not export those commodities to the EU, he told reporters here.

"But it will definitely impact to some degree. The extent to which it can be mitigated, the extent to which our industry can adapt, the extent to which mutual recognition of the testing and certification agencies can happen, these are all areas on which the inter-ministerial group is coordinating," he said.

Commerce secretary and many other secretaries are discussing the ways in which it could be tackled, he added.

In terms of calculating the monetary impact of this decision on India, it is still being assessed, Sarangi said.

Citing an example, he said the EU has prescribed different mechanisms for imposing the tax on steel manufactured through the electric arc furnace route and through the blast furnace route. The tax will be different for both mechanisms.

So how much steel is being manufactured through these two ways, that segregation will have to be done and that will take some time.

Another official said how far this is compatible with the norms of the World Trade Organisation (WTO), all this "we are talking".

The EU is introducing the carbon border adjustment mechanism (CBAM) from October 1 this year. CBAM will translate into a 20-35 per cent tax on select imports into the EU starting January 1, 2026.

According to economic think tank the Global Trade Research Initiative (GTRI) from October 1, India's Iron, steel and aluminium exports to European Union countries will face extra scrutiny under the mechanism.

From January 1, 2026, the EU will start collecting the carbon tax on each consignment of steel, aluminium, cement, fertilizer, hydrogen and electricity.

In 2022, India's 27 per cent exports of iron, steel, and aluminium products of value USD 8.2 billion went to the EU.

Cement, fertilizer, and electrical energy are other affected products, but India has negligible exports to the EU in these products.

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