India has rejected a European Union proposal to impose higher taxes on its carbon-producing industries, despite the EU's offer to offset these taxes when products enter its borders, according to a top official. The proposal, defended by an EU delegation led by Gerassimos Thomas, director general for taxation and customs union within the European Commission, was deemed impractical by India.
“Their suggestion is not practical. Their team had come and met us… the solution they are offering doesn't work for a developing economy like India,” said Ajay Seth, India's economic affairs secretary, in an interview with Reuters. He described the proposed Carbon Border Adjustment Mechanism (CBAM) as unfair and detrimental to domestic market costs.
The EU, which last year approved the world's first plan to impose tariffs on imports of high-carbon goods such as steel, aluminum, and cement, aims to achieve net-zero greenhouse emissions by 2050. However, negotiations between the EU and India are ongoing at a technical level, with EU officials seeking to win over opposition from countries like China, South Africa, and India.
The EU delegation emphasized that the carbon tax is intended not to raise revenue but to ensure the supply of greener goods to the EU market. They suggested that India could implement its own carbon tax to fund advancements in supply chains and reduce carbon emissions while maintaining its share of the EU market.
Seth highlighted the economic challenges, stating, “With income levels which are one-twentieth of the income levels in Europe, can we afford a higher price? No, we can't.” He noted that greening the steel industry would entail higher costs for the economy.
Assuming India does not implement a domestic plan to tax high-carbon production, the EU plans to collect the carbon tax on each consignment of steel and aluminum from January 1, 2026, potentially imposing tariffs of between 20% and 35%, according to industry estimates. Analysts warn that this deadlock over carbon emissions could strain bilateral trade and affect discussions on a free trade agreement (FTA).
“As India is negotiating an FTA with the EU, it should be ready for the scenario that Indian products will attract a high 20%-35% CBAM tax in the EU and their products will enter India duty-free,” said Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), a New Delhi-based think tank.
The EU is India's second-largest export destination, with nearly $100 billion in exports in 2023. India, which had a carbon intensity of 632 grams per KWh in 2022, is expanding its renewable capacity and has reduced its carbon intensity by 3.5% since 2018. It aims to achieve net zero by 2070.
“We have now about 170 or 180 gigawatts of renewable energy, but that is not available during nighttime,” Seth said, highlighting the challenges of producing greener exports solely for the EU market.
