EU's carbon tax: Aluminum, steel and cement exports hit

- Antenna-Vivek Mehta

- Exports of six business sectors of India are at risk of going down after implementation of the new system from January 1, 2026

The global carbon tax controversy is now taking a serious form. In non-European countries, provision has been made to levy a tax on manufacturers for the carbon released into the atmosphere during the manufacture of goods made from metals, including steel. The more carbon emissions a manufacturing unit produces, the more tax it has to pay while exporting. Manufacturing units in the European Union have to pay this price under the European Union Trading System (ETS). Now the exporters of every country, including India, who export their products to the countries of the European Union, have to bear the burden of the new tax. This arrangement is known as Carbon Border Adjustment Mechanism. These are the restrictions applied by the countries of the European Union. European countries also argue that because of this control, a level playing field is being provided to European producers and foreign exporters.

The main purpose behind this arrangement is to prevent and reduce carbon emissions. If carbon emissions are not reduced, solving the problem of climate change will be difficult. Due to climate change, there is a problem of sudden increase in rainfall, sudden increase or decrease in heat or cold. The three-season cycle of summer, monsoon and winter is being disrupted. If the Tuchakra is not regularized, there is a risk of major devastation.

There is also a desire to apply the same standards on carbon emissions to countries in the world with less stringent regulations on curbing carbon emissions and countries that do not have very strict standards. The largest impact of this mechanism to curb carbon emissions is likely to fall on manufacturers involved in India's cement, steel-iron, aluminum, futilizer, electricity and hydrogen production.

Carbon tax regime will be applied to more products over time. Government of India has also agreed to implement this system. The Government of India has demanded a detailed discussion on all aspects of carbon tax before implementing it from January 1, 2026. The countries of the European Union have also shown their readiness to consider this proposal of the Government of India. But the big problem for India's exporters is that if carbon tax is levied on the value of their exports, the marginal cost of their products will increase significantly. As a result, it will become difficult for them to compete in the global market. That's why Indian exporters say EU manufacturers seem more interested in deterring Indian exporters than in tackling carbon emissions. The issue of carbon emissions is a big one.

Carbon emissions are likely to increase the price of Indian products in the world market by 20 percent to 35 percent. Even if carbon emission tax is levied on Indian exporters, it should be as low as possible. The Government of India wants the carbon credit trading system to be fully operational by January 1, 2026. This system should also be recognized by the countries of the European Union. Only then can the system of taxing carbon emissions be implemented more systematically. If we look at the export figures of 2022, steel and iron products are exported from India to the value of approximately 8.2 billion dollars i.e. approximately Rs. 66,000 crores. The Indian government will unite the sky to prevent this export from falling.