According to the think tank GTRI, the European Union is considering an expansion of its Carbon Border Adjustment Mechanism (CBAM), which may result in higher carbon tax expenses for Indian exports to Europe.
Indian exporters selling goods to Europe may have to speed up their efforts in emissions accounting, supply chain traceability, and investments in decarbonization to stay competitive in a crucial export market for the country.
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Earlier this year, a preliminary report was released by the European Parliament's Committee on the Environment, Climate, and Food Safety (ENVI), outlining five significant amendments to the CBAM system. The modifications involve expanding the coverage of CBAM to approximately 180 more manufactured goods made of steel and aluminum starting from January 1, 2028.
Additionally, there will be a refinement of the carbon accounting regulations for production using scrap materials by incorporating emissions from pre-consumer scrap, as stated by the Global Trade Research Initiative (GTRI). It also involves assessing the extension of the system to encompass indirect emissions stemming from electricity consumption in various industries.
CBAM is a carbon tax imposed by the European Union on imported goods to account for the emissions generated during their production outside of Europe. It efficiently imposes a carbon fee on overseas producers who are exporting goods to the European Union.
This system functions as a trade barrier linked to climate change for imports that have a high carbon footprint.
He stated that the suggested growth would encompass a range of new items falling under CBAM, such as fabricated metal products, tubes, pipes, fasteners, structural components, machinery parts, aluminum containers, and various semi-finished and finished engineering goods.
The European Union has not released specific information about the products, however, the suggestion indicates that the tax is expanding further into the production process, according to his statement.
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Currently, the Carbon Border Adjustment Mechanism (CBAM) is specifically targeted towards imports of iron, steel, aluminum, cement, fertilizers, hydrogen, electricity, and certain steel and aluminum products.
He issued a warning that starting in January 2028, Indian exporters of engineering goods, auto components, fabricated metal products, machinery, aluminum manufactures, and other industrial goods may encounter a growing carbon tax obligation when trading with Europe.