India’s high-emitting sectors fear EU CBAM will prove protectionist

The Indian government continues to engage with the EU about the bloc’s carbon border adjustment mechanism.

Indian exporters who believe the EU’s carbon border adjustment mechanism acts as a trade protectionist policy are lobbying their government to advocate their concerns. The country’s so-called hard-to-abate sectors – where emissions are difficult to avoid, such as the steel industry – argue that the EU CBAM discriminates against emerging economies. 

“The EU CBAM is definitely a trade barrier,” says Alok Sahay, secretary-general of the Indian Steel Association. “Developing countries including India are not appreciative of this step taken by the EU,” Sahay tells Sustainable Views. 

The EU CBAM aims to put a "fair price" on the carbon emitted during the production of carbon intensive goods entering the EU. However, if the exporting organisation can prove it has already paid an equivalent price for its carbon emissions in its manufacturing country, then additional costs will not be placed on them. For this reason, others have argued that the EU CBAM is not a protectionist measure. 

“We are looking into whether we can get the acceptance of the Indian carbon pricing mechanism,” says Ajay Sahai, director general and CEO of the Federation of Indian Export Organisations. “Once that happens and we enter into some kind of mutual recognition with our EU counterparts, then that will help ease the carbon emission reduction process.”

Ahead of the application of the EU CBAM on October 1, there is rising speculation that India is planning to file a complaint with the World Trade Organization, as reported by Reuters.

However, Sahai tells Sustainable Views that there has been no confirmation that a WTO filing will go ahead, and adds: “What I've been given to understand is that the Indian government wants to engage directly with the EU rather than filing with the WTO because this is not a trade relation issue. We have similar concerns with Canada, Japan and Australia.”

Bloomberg cited sources familiar to the matter as confirming this preference. The Indian government did not immediately respond to a request for comment by Sustainable Views.

Experts have pointed out that a complaint is unlikely to have much chance as the EU CBAM was designed to be compliant with WTO rules. “If the EU didn’t already have a domestic price on carbon, the case would much clearer that it is discriminatory,” says Emily Benson, director of project on trade and technology at the Center for Strategic International Studies. 

She adds that the EU CBAM is consistent with provisions under Article 20 of the General Agreement on Tariffs and Trade, whereby WTO members can adopt measures to protect the environment, human health and life on the planet.

“This significant provision says if you can demonstrate the environmental benefit of a certain policy, then you can implement it,” Benson says. “Issues would only arise if there is clear evidence that the EU CBAM isn’t having much of an environmental effect. But for that, we will need to see how implementation goes.”

India and other developing countries are likely to face further carbon border adjusted mechanisms, with the US and Australia planning to propose their own CBAMs. Sahai at the Federation of Indian Exporters says: “This kind of regulation will be imposed by many other countries, so we need to move proactively from that.”