Options To Counter The EU’s Carbon Tax Plan

Options To Counter The EU’s Carbon Tax Plan

Options To Counter The EU’s Carbon Tax Plan

Context:

The Commerce Ministry is looking into several possibilities, including retaliatory tariff measures, a challenge at the World Trade Organisation, and steps to assist smaller Indian exporters, to deal with the European Union’s decision to establish a carbon tax.

Points to Ponder:

  • Beginning in 2026, the European Union (EU) intends to implement the Carbon Border Adjustment Mechanism (CBAM), which will monitor and charge imports from companies using non-green technologies. Exports of Indian engineering and metal goods to the EU are likely to suffer as a result.
  • The European Union (EU)’s introduction of the Carbon Border Adjustment Mechanism (CBAM) is a significant step in tackling the problem of carbon leakage and ensuring that European businesses have a fair playing field globally against cheaper goods from China and India.
  • Through this method, the EU can unilaterally impose a surcharge on imports from nations that do not adhere to its environmental criteria. However, a strong compliance structure that would guarantee transparency, accuracy, and efficacy is needed to enforce the CBAM.
  • The Indian Commerce Ministry is looking into some solutions to this problem, including retaliatory tariff actions, which entail placing taxes on products imported from the EU in retaliation for the CBAM levy.
  • A protest against the EU’s CBAM tax is being brought before the World Trade Organisation (WTO), which oversees the laws governing global trade.
  • Aiming to encourage micro, small, and medium-sized enterprises (MSMEs), the steel sector, and the aluminium industry are some of the measures being taken to assist smaller Indian exporters.
  • The Remissions of Duties and Taxes on Exported Products (RoDTEP) scheme should be expanded to include the primary iron and steel sector, according to EEPC India Chairman Arun Kumar Garodia.
  • In comparison to the incentives supplied under the previous goods exports from India plan, which offered incentives in the range of 2% to 5%, the rebate provided by RoDTEP for the engineering sector is now in the range of 0.5% to 1%.