India and the European Union have agreed to a constant engagement before Carbon Border Adjustment Mechanism (CBAM) or Carbon Tax on exports to the 27-member block kicks in from January 2026.
“We have a long time ahead of us within which we will be working together to find right solutions to this,” Commerce and Industry Minister Piyush Goyal said at a press conference after the conclusion of the first meeting of India-EU Trade and Technology Council late Tuesday night .
“We will have continued engagement with India on this important topic,” European Commissioner for Trade Valdis Dombrovskis said.
Both sides held an expert group discussion on the CBAM. The issue also came up in bilateral meetings and Trade and Technology Council meetings in Brussels.
“TTC is a good platform to deepen our engagement on this issue (carbon tax) with India,” Dombrovskis said.
“While designing (CBAM) we ensured WTO compatibility. It is non discriminatory. We will apply the same price of carbon to imported goods that will apply to domestic producers,” he added.
Carbon tax will be calculated on the basis of price of Carbon Credits on EU Emissions Trading System (ETS). Tax will be imposed on the basis the difference between carbon emissions during making of the product and thresholds prescribed by the EU.
To help reduce the burden on the industry the Indian government has said that it would press the EU on mutual recognition of certification on emissions and recognition of its Carbon Credit Trading Scheme (CCTS) that is under preparation by the Ministry of Power.
If India’s CCTS is accepted then payment of tax for emissions beyond prescribed threshold will be determined on the basis of price of credits on Indian carbon exchange and not price of credits on EU ETS.
The EU has formulated CBAM under which it will put extra tax on imports of those commodities where carbon emissions at the production stage are higher than the threshold that will be prescribed.
To start with, the tax will be imposed on seven commodities – iron and steel, aluminium, cement, fertiliser, hydrocarbon products and power. By 2034 all goods will come under CBAM.
While the tax will be imposed on imports from January 1, 2026. The mechanism will enter into the transition phase on October 1, 2023. During this period importers in the EU of seven products will have to report greenhouse gas emissions embedded in their imports without making financial payment and adjustments.
Goyal said while India and the EU would remain engaged, he was sure that the intention of the tax was not to put barriers to trade.
After the two-day meeting of the Trade and Technology Council, Executive Vice President of the European Commission Margrethe Vestager said the EU has an arrangement like TTC with only one other country – the US.
“It has been a very promising two days. We have seen working groups already producing reports. Laying out their working plans. There is an understanding on how we will engage in high performance computing, on quantum computing, we have very ambitious ideas on tech and tech governance,” she said.
“We decided to concentrate on 4 areas in the coming years. Resilient value chains, addressing market access issues, working on growing trade relationships and global trade issues particularly in the context of the coming World Trade Organization ministerial conference,” Dombrovskis said.
The next Ministerial Conference of WTO is scheduled for 2024 in UAE and India is pushing for a solution to its long standing demands on e-commerce and agriculture.
Apart from computing, India and EU will also collaborate on artificial intelligence, semiconductor design and the whole ecosystem around semiconductors, microelectronics and the supply chains that today represent a big threat because of the extraordinary concentration of electronic supply chains in one particular geography which offers a great opportunity, Minister of State for Electronics and Information Technology Rajeev Chandrasekhar said.
“We feel that the TTC and India EU partnership can also address the issue of harmonising rules, regulations and approach towards the internet today and future as the internet grows and becomes a decisive force in all of our economies and all of our citizens’ lives,” he said.
“We have a clear plan and calendar on how we plan to go ahead,” External Affairs Minister S Jaishankar who also attended the TTC meeting said.
Goyal said that the TTC is helpful as it is supplementing the FTA negotiations and the FTA will make India-EU relationship the defining partnership of the century.