EU's Carbon Tax could impact India's GDP by 0.05%: Report

The European Union’s Carbon Border Adjustment Mechanism (CBAM) is set to impose an additional 25% tax on energy- intensive goods exported from India to the EU, according to a report released on Wednesday. The report, titled "The Global South's Response to a Changing Trade Regime in the Era of Climate Change" by the independent think tank Centre for Science and Environment (CSE), highlights the significant economic burden this measure will place on India.The CSE report estimates that this tax burden will amount to 0.05% of India’s GDP. This economic impact underscores the challenges that developing countries like India face as they strive to balance economic growth with environmental sustainability.
The CBAM aims to level the playing field for EU industries by imposing a carbon tax on imports from countries with less stringent environmental regulations. This mechanism targets sectors with high carbon emissions, such as steel, cement, aluminum, and fertilizers. For India, a country heavily reliant on exports of these goods, the 25% tax represents a substantial increase in costs.The move has also sparked debate at multilateral forums, including UN climate conferences, with developing countries arguing that, under UN climate change rules, countries cannot dictate how others should reduce emissions.
According to information,in 2022-23, the exports of CBAM-covered goods to the EU made up about one-fourth (25.7 per cent) of India's total such goods exported globally, which is significant for the industries operating in these sectors. Currently, hydrogen and electricity are not exported from India to the EU. Of India's total goods exported worldwide, CBAM-covered goods exports to the EU constitute only about 1.64 per cent.
In light of this, the experts suggests that India should consider imposing a 'historical polluter tax' on the EU. This proposed tax would serve as a countermeasure, addressing the historical contributions of developed nations to global carbon emissions. Developed countries, including those in the EU, have been major contributors to greenhouse gas emissions since the Industrial Revolution. Advocates of the 'historical polluter tax' argue that these countries should bear a greater share of the responsibility in mitigating climate change.
"The proposed historical polluter tax is not just about economic compensation, but also about climate justice," official stated reportedly.It is essential to ensure that the burdens of climate mitigation are shared equitably, considering both current emissions and historical responsibilities.

(Writer is a Finance Research Analyst, based in Gandhinagar, Gujarat)