EU Official Highlights Carbon Border Adjustment for Fair Trade and Decarbonisation

The European Union's Carbon Border Adjustment Mechanism (CBAM) aims to equalise the treatment of imported goods with those produced within the EU to support global decarbonisation efforts. Gerassimos Thomas, Director-General of the European Commission, recently visited India to discuss tax and customs issues, particularly focusing on CBAM. His visit included meetings with Indian government officials and business leaders to understand the potential impact on Indian industries and explain CBAM's objectives and timeline.

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Thomas emphasised India's plans to decarbonise its economy, highlighting a shared commitment to collaborate on these efforts. "My mission was an excellent opportunity to have direct, in-depth and meaningful interactions with my Indian counterparts and business representatives on a wide range of tax and customs matters, as well as CBAM. The importance of EU-India relations is growing. Both sides want to deepen this relationship to benefit business," he said.

Impact on Developing Countries

Developing nations are concerned that the EU's planned CBAM tax could harm their economies by making trade with the bloc too expensive. The mechanism aims to set a price on the carbon emitted during the production of energy-intensive goods like iron, steel, cement, fertiliser, and aluminium in other countries. This is intended to reduce emissions from imports and create a level playing field for goods produced within the EU that must adhere to stricter green standards.

The European Commission stated that CBAM ensures imported goods are treated equally to those produced in the EU. "It does not discriminate and has a very gradual phase-in to give maximum predictability for investors and businesses," Thomas said. He also mentioned that Europe is a net importer of CBAM goods and aims to continue importing goods with the lowest possible carbon intensity to contribute to global decarbonisation.

Technical Meetings and Future Plans

Technical meetings with India's Ministry of Power, including the Bureau of Energy Efficiency, will continue. An assessment report on the transition period will be submitted to the Council and the European Parliament before the end of next year. This report will be public, allowing Indian industry and authorities to comment and discuss next steps with the European Commission.

Thomas noted that his visit was an opportunity to listen, learn, and improve. "To listen to the challenges that Indian businesses face when implementing CBAM. To learn, for example, if and how Indian Micro-Small and Medium-sized Enterprises (MSMEs) are possibly affected as the CBAM measure normally affects only big enterprises. And to reiterate and jointly explore efforts to adapt and improve the CBAM measure," he said.

Customs Cooperation and Taxation

The EU and India have had a Customs Cooperation Agreement since 2004. During his visit, Thomas focused on current customs challenges such as cross-border e-commerce and designer drug precursors. India agreed to strengthen bilateral ties in this area under the existing agreement. Ongoing negotiations for an EU-India Free Trade Agreement include an upgrade of this customs cooperation.

On taxation, discussions included addressing tax challenges related to digitalisation through the Two-Pillar Solution. India confirmed its commitment to Pillar 2. Regarding international tax cooperation under the UN Framework Convention, both parties agreed that overlapping tracks should be avoided.

Beyond CBAM, there is mutual interest in deepening exchanges on carbon trading markets, pricing mechanisms, and cooperation in energy efficiency, renewables, and clean technology between the EU and India.

The visit underscored both sides' commitment to enhancing their relationship for mutual benefit while addressing global environmental challenges through collaborative efforts in decarbonisation and sustainable development.