FM terms EU’s carbon tax as ‘trade barrier’

Finance minister Nirmala Sitharaman on Wednesday termed the European Union’s decision to impose a carbon tax on Indian products such as steel and cement “unilateral”, “arbitrary” and a “trade-barrier” aimed at hurting Indian industries, and said the levy is a pretence to convert EU’s own “dirty” steel into green at another’s cost.
Speaking at the Energy Transition Summit organized by the Financial Times in New Delhi, she said India is committed to achieve the net-zero carbon emitter status by 2070 . “We are clear. We have a pathway. And that pathway will be very challenging because the challenges are more external than from within the country.” But, India’s per capita carbon emission is only one-third of the global average, she added.
Sitharaman’s remark comes at a time when India-EU free trade agreement talks are on and the European block is pushing sustainability measures such as the Carbon Border Adjustment Mechanism (CBAM) and EU deforestation regulation (EUDR) . India raised this matter at the ninth round of FTA talks in New Delhi on September 23-27, according to a negotiator who did not wish to be named.
Replying a specific question about financial resources required to achieve India’s net-zero goal, the finance minister said: “India is one of those countries which is putting money where it should be put.” The major challenge is external , she said citing example of CBAM. Sitharaman termed it a “unilateral measure” which “is going to hurt” the Indian industry. Sitharaman said she was not even sure whether the EU’s sustainability measures were compliant to the World Trade Organization’s (WTO) norms. “But, I think, it’s unilateral,” she added.
According to the finance minister, India has proven its sincerity in fulfilling its international commitments, but unforeseen measures like CBAM pose challenge creating a situation of uncertainty that there could be more such surprises. “They are unilateral and are not helpful for countries like India,” she said.
On being asked whether such unilateral action is considered a barrier to trade, she said: “Absolutely, it is a trade-barrier.” “You’re putting in a tariff for what you define as dirty steel. While you, yourself w produce the dirty steel and make sure that the money which you earn out of this [levy] is funding your conversion from dirty to green steel,” she added.
She said, that when EU starts producing enough green steel, it will stop imports of “dirty steel” coming from developing countries like India even as they funded its green steel production through CBAM.
HT on September 23 reported that India would discuss sustainability measures such as the carbon tax and deforestation regulations with the 27-nation bloc in FTA talks.
India believes CBAM is a form of tax that can lead to tariffs of up to 35% on imports of high-carbon goods such as cement, aluminium, fertilisers, chemicals including hydrogen, iron and steel from India. CBAM will be levied on carbon intensive products to offset “carbon leakage”involved in importing high-carbon goods. Carbon leakage occurs when firms in the EU move carbon-intensive production abroad to countries, where less stringent climate policies are in place, or when EU products get replaced by more carbon-intensive imports. The tax is being implemented in phases from October 2023 and will become fully effective from January 2026.
EUDR or the regulation on deforestation-free products covers production of commodities such as cattle, wood, cocoa, soy, palm oil, coffee, rubber and some of their derived products such as leather, chocolate, tyres and furniture. This demands certification from importers to prove their products didn’t originate from recently deforested land or contributed to forest degradation. EUDR will start to apply from December 30 this year.
India is committed to environmental protection and sustainability, but it is against making instruments such as EUDR and CBAM part of trade commitments because these are perceived as instruments of protectionism and act as non-tariff barriers (NTBs), the official mentioned above said.