Carbon tax is a thorn.  But that won’t stop free trade talks

 – Gudstory

Carbon tax is a thorn. But that won’t stop free trade talks – Gudstory

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New Delhi, Mumbai : India’s free trade talks with the UK and the European Union (EU) may skip the complex carbon tax matter in an effort to move trade deals faster, three people with knowledge of the matter said.

The absence of any agreement on Carbon Border Adjustment Mechanism (CBAM) is threatening Indian steel exports to the region as it will increase the cost of exports and reduce profits. India is negotiating separate free trade agreements (FTAs) with the UK and EU.

“There is a sense of urgency in finalizing these FTAs ​​and reaching some consensus as the government’s term is about to end,” said one of the three people, speaking on condition of anonymity. Negotiations on CBAM will be conducted separately by Steel and Steel. The official said, the Ministry of External Affairs with its foreign counterparts.

The commerce and steel ministries did not respond to queries sent on Monday.

The EU’s CBAM, and a similar UK policy, call for the imposition of a carbon tax on imports in the sectors of iron and steel, aluminium, cement, ceramics, fertilisers, glass and hydrogen from January 2026. The UK and EU say the levy aims to put a fair price on the carbon emitted when these goods are produced outside the region and protect local producers from price losses.

Two other people with knowledge of the matter said Indian steelmakers are lobbying the government to seek concessions on CBAM as part of the ongoing FTA discussions. However, now this topic has gone out of discussion, adding to the uncertainty for Indian steel makers. Questions sent to the Indian Steel Association, the leading lobby of the domestic steel industry, remained unanswered.

A steel industry executive said that excluding CBAM from the FTA talks could be a strategic move by India. “Opaqueness in the emissions calculation mechanisms of the EU or the UK raises concerns. Integrating CBAMs into the FTA at this stage would be tantamount to surrendering our own weapons until we gain clarity on the matter,” the executive said on condition of anonymity.

According to an analysis by ICRA Ltd, CBAM compliance requirements could reduce the profits of Indian steel exports to the EU by $60-165 per tonne between 2026 and 2034. Experts said the impact could be similar for exports to the UK.

Not surprisingly, Indian steelmakers view CBAM as a trade barrier. “Our position is clear: CBAM acts as a trade barrier, which contributes to trade imbalance. The EU mandates adherence to its own criteria, but the CBAM does not consider the historical emissions of developed countries. “I don’t think CBAM should be mandatory in FTA negotiations,” said Prabodh Acharya, chief sustainability officer of JSW Group. JSW Steel Ltd, part of the group, is one of India’s top steel exporters.

“The prospect of a larger carbon tax from January 2026 could encourage European and UK importers to shift to steel producers with a lower carbon footprint than India before the external deadline,” said Jayant Roy, senior vice president, ICRA ” “Their carbon footprint could be materially reduced during the transition period, potentially leading to lower profits and loss of market share in Europe.”

The average emission intensity of Indian steel makers is 12% higher than the global average of steel produced through the blast furnace route.

With CBAM not on the table, it could have a major impact on Indian steel exporters. Steelmint data shows India exported about 3.6 million tonnes of finished steel to Europe and 0.4 million tonnes to the UK in 2023. Cumulatively, this accounts for almost half of India’s total steel exports.

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Published: Jan 25, 2024, 06:00 am IST

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