India criticizes EU proposal for carbon tax for its industry

India has been cool to the EU’s proposal to levy a higher carbon tax on its industry, considering the plan impractical and unacceptable. This is reported by Reuters.

The latest proposal was made by an EU delegation led by Gerasimos Thomas, Director-General for Taxation and Customs Union of the European Commission, who defended the Cross-Border Carbon Adjustment Mechanism (CBAM) during meetings with Indian officials.

Ajay Seth, India’s economic affairs minister, called the solution proposed by European officials “unworkable” for developing countries.

India has made its position known to the EU, criticizing CBAM as an unfair instrument and one that could lead to higher costs in the domestic market.

The European delegation suggested that New Delhi introduce its own carbon tax to support greener supply chains while maintaining access to the EU market. However, Seth emphasized that the cost of decarbonizing the steel industry would be a significant burden on the economy.

“With our income level being one-twentieth of the European level, can we afford such high prices? No, we cannot,” he said.

The CBAM could impose tariffs of 20% to 35% on Indian steel and aluminum exports to the EU starting January 1, 2026.

Analysts warn that the impasse on carbon emissions could strain bilateral trade and affect free trade agreement (FTA) discussions. The bloc is India’s second-largest export destination, with the European Union accounting for nearly $100 billion worth of products in 2023.

Seth explained: “India wants the EU to adhere to the carbon reduction rules agreed in the 2015 Paris Agreement, which allows developing countries more flexible targets than developed countries.

India has been actively increasing its renewable energy generation capacity and has reduced its carbon emissions by 3.5% percent since 2018. The country aims to achieve carbon neutrality by 2070.

As the EU said in a statement after a delegation from the bloc visited India in early July, negotiations between the parties are ongoing at a “technical level.” The European Union is trying to win over countries such as China, South Africa, and India, which have opposed the CBAM.

The European CBAM could cost India 0.05% of its GDP, according to a report by the independent think tank Center for Science and Environment (CSE).