Domestic carbon tax could help avoid EU's CBAM, says Indian minister

India's Minister for Commerce and Industry Piyush Goyal said Nov. 2 that a domestic carbon tax could help exporters avoid the EU's Carbon Border Adjustment Mechanism (CBAM) levy.

CBAM levies a tax on imports of selected carbon intensive materials and products -- including aluminum, cement, electricity, fertilizers, hydrogen, iron and steel -- into the EU, removing the gap between the EU Emissions Trading System carbon price and the carbon price of the country of origin of the imports.

"If the country from which the goods originate taxes carbon at the level at which the European Union taxes their domestic companies, then there will be no additional tax on our exports to those countries," Goel said in a statement.

"So, if we collect the tax in India itself, there will be no additional tax... India will not have a disadvantage in its exports to Europe."

The CBAM started a transitional phase on Oct. 1 with quarterly reporting required by importers, but no charges, with the permanent system scheduled to come into force on Jan. 1, 2026.

Goel said Indian industry need not be concerned about CBAM because the government is in dialogue with the European Union and the European countries and their leadership to discuss concerns of Indian exporters.

Earlier this year, Indian exporters urged the government for measures to lower the impact of the tax.

"Government may be approached to ask the EU to defer the tax," Ajay Sahai, director general, Federation of Indian Export Organizations told S&P Global Commodity Insights in June. "For large companies it may not be so difficult, but small and medium enterprises will be badly hit."

India is in the process of establishing a national carbon market, with the government consulting on every aspect of the mechanism ahead of a likely start in 2025.

India's commodity exports to the EU under CBAM are forecast to equate to 173 million mt of CO2 emissions between 2026 and 2040, or 5% of the total 3.33 billion mt CO2 emissions seen exported to the EU, according to S&P Global.

Platts, part of S&P Global, assessed EU Emission Allowance for nearest December at Eur78.65/mtCO2e ($83.58/mtCO2e) as of Nov. 2.

The carbon levy/tax to be charged under CBAM mirrors the EU Emission Allowance price.

Related feature: Insight from New Delhi: Navigating India's carbon markets