India may hit back at EU's carbon tax

Counter-tariffs likely as move threatens India's metal exports

- Ravi Dutta Mishra & Subhash Narayan

India is considering imposing retaliatory tariffs on European Union exports in response to the bloc's proposed carbon tax that could disrupt over $8 billion worth of Indian metal exports to the EU, two government officials aware of the development said.

Starting 1 October, iron, steel, and aluminium exports to European Union countries from across the world will face added scrutiny under the bloc’s Carbon Border Adjustment Mechanism (CBAM), or carbon tax. Suppliers will have to report greenhouse gas emissions ‘embedded’ in their consignments before taxes are levied from 1 January 2026.

The proposal has triggered trade tensions with the rest of the world and particularly angered the developing world. In India it has raised concerns among metal producers, who fear it will create a new trade barrier for exports to Europe.

Several countries, including India, have called the measure discriminatory and running against internationally accepted principles that give developing countries greater flexibility in climate change policies as they are not historically responsible for creating the crisis.

To be sure, the European Parliament is yet to formally clear the proposal. When it does become law, its compliance with World Trade Organization principles could be tested.

CBAM impacts imports from all non-EU nations except those that possess an emission trading system (ETS) linked to the EU’s ETS. Brazil, Russia, India, China and South Africa collectively condemned the CBAM policy as discriminatory in a joint statement in April 2021.