CBAM unilateral and arbitrary, will hurt Indian industry: FM Sitharaman

According to the European Union, CBAM is a tool to put a fair price on the carbon emitted during production of carbon-intensive goods entering the trade bloc

Finance Minister (FM) Nirmala Sitharaman on Wednesday termed the Carbon Border Adjustment Mechanism (CBAM) tax as ‘unilateral’ and ‘arbitrary’ that could hurt India’s industries.

Sitharaman noted that the proposed Deforestation Act by the European Union (EU) will cause a major disruption in the supply chain and not help countries like India that are spending heavily on transition costs.

“As a country, which has proven its record, and for international agencies to have recognised that it is keeping its commitment (for climate action goals) and fulfilling it, and to have to faced unilateral measures like this will be the challenge, these are such not so helpful ways in which developed countries follow certain policies that are unilateral and I'm sorry to say, arbitrary," the FM said at an event hosted by UK’s Financial Times.

According to the EU, CBAM is a tool to put a fair price on the carbon emitted during production of carbon-intensive goods that are entering the trade bloc. 

Sitharaman said CBAM was a trade barrier, which may be justified to the World Trade Organization (WTO) on grounds of being “green.”  

“I'm not sure whether it is WTO compliant, but we have been told that it could be."

In conversation with FT’s South Asia Bureau Chief, John Reed, Sitharaman said: “You're putting a tariff for what you define as dirty steel, while you yourself would produce the dirty steel and make sure that the money which you earn from this is funding your conversion from dirty to green steel.”

The FM said India’s concerns around CBAM have been voiced in the Free Trade Agreement (FTA) negotiations with the EU and would be raised again, but the issue may not be escalated to the level of hurting the talks. 

The CBAM is a carbon tariff imposed on carbon-intensive products like steel, cement, and certain types of electricity imported into the EU. It will come into effect from January 1, 2026.

During the trial period, which began on October 1, 2023, companies from seven carbon-intensive sectors, including steel, cement, fertiliser, aluminium and hydrocarbon products, have to share emissions data with the EU. 

Sitharaman said India’s commitment towards the net-zero goal can be seen in the way the country has performed.

She noted that India was on track to meeting the climate action goals of 2030. 

“The challenges are more external. We keep reminding ourselves that our emission per capita is third of what it is globally,” she explained.

Sitharaman added that India was consistent in promoting every renewable source of energy. “India is one of those countries, which is putting money where it should be put.”