India might lose 0.05% of GDP due to EU’s Carbon Tax

A new report by the independent think-tank, Centre for Science and Environment (CSE), has found that the European Union’s (EU) introduction of the Carbon Border Adjustment Mechanism (CBAM) will lead to an additional 25 per cent tax on carbon-intensive goods exported from India. This tax burden would represent 0.05 per cent of India’s GDP (taking 2022-23 as a sample year) and a counter-tax should be imposed on such rich-countries who are historically responsible for climate change, the report added. 

As part of this mechanism, the EU plans to tax imports like  iron, steel, cement, and aluminium based on the GHG emission intensities of their production. The plan seems to be protecting EU’s firms operating under the Emissions Trading System (ETS) through the implementation of similar charges on imports from countries which do not have a carbon pricing mechanism. 

This has, however, led to apprehensions that the CBAM will affect the trade competitiveness of developing countries and place the decarbonisation burden on them by ignoring the disproportionate contribution of the developed nations to the problem. In COP 28, this concern was highlighted by the developing countries about the negative impact of mechanisms like CBAM on their economies. 

The CSE report recommended a ’historical polluter’ counter-tax on rich countries historically responsible for climate change so that these countries who were not historically responsible for the climate crisis can finance their self decarbonisation efforts. 

“This tax could be levied on trade partners responsible for a significant share of cumulative historical carbon dioxide emissions since the pre-industrial period,” Avantika Goswami, who leads CSE’s climate change programme and the report’s co-author, was quoted as saying in a PTI report. 

“Historical trends indicate that carbon-intensive production has shifted from developed to developing countries, creating disparities in emissions intensity between nations. Today’s differences in emissions intensity are also tied to historical emissions, as the Global North utilised fossil fuels like coal during the early stages of the Industrial Revolution which enabled it to amass wealth and grow its economies,” Goswami reportedly said.

“The imposition of a CBAM overlooks this historical context and unfairly penalises the Global South. It is not retaliation, but rather a necessary course correction for the South to impose costs on the North for years of cheap polluting energy use, offshoring, and reliance on inexpensive offsets,” Goswami was further quoted as saying.

The CSE report also went on to recommend a domestic carbon tax to avoid taxation in Europe. India can levy their own carbon tax on exports of CBAM products destined for the EU or any other country that will impose carbon border tax, the report suggested. The revenue generated from this effort can be used by India in its mitigation strategies besides the goal of decarbonization. 

Reference : https://www.cseindia.org/carbon-border-adjustment-mechanism-cbam–12271

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