Carbon tax hurdle looms over India-UK FTA talks

An EU-style carbon border adjustment mechanism (CBAM) is expected to dent India’s metal exports to the UK even if India and the UK agree on significant tariff concessions, experts said.

- Ravi Dutta Mishra

India’s proposed free trade agreement with the UK could face a major roadblock, as the latter is considering imposing a carbon tax akin to the European Union’s policy, which proposes to levy steep tariffs on imports with higher carbon footprints.

An EU-style carbon border adjustment mechanism (CBAM) is expected to dent India’s metal exports to the UK even if India and the UK agree on significant tariff concessions, experts said. India and the UK have completed six rounds of negotiations and are expected to sign the agreement shortly.

However, both the governments have refrained from announcing any deadline to complete negotiations.

The EU carbon tax, also known as CBAM, aims to cut carbon emissions by imposing a levy on imported goods based on their carbon footprint.

The proposal triggered trade tensions with EU’s trading partners, including India, who call it a protectionist tool that makes their goods less competitive in the EU market.

India has opposed measures such as CBAM and has called it “discriminatory" in a letter to the World Trade Organization (WTO).

According to the UK’s 126-page-long consultation paper titled ‘Addressing carbon leakage risk to support decarbonization,’ implementation of CBAM is a “possible" carbon leakage policy measure. The consultation period for the UK’s carbon tax ends on 22 June.