From October 1, 2023, the transitional stage for CBAM is expected to begin. Although CBAM is a European mechanism to control greenhouse gas emissions, it impacts businesses the world over.
What is CBAM?
The full form of CBAM is the Carbon Border Adjustment Mechanism. Industries such as steel, cement, aluminium, fertilizers, electricity and hydrogen are known to be the most energy-intensive. In fact, it is believed that these industries contribute to about 10% of global greenhouse gas emissions. In order to encourage these industries to adopt greener technologies.
CBAM will be implemented in a transitional phase starting from October 2023. From October 1, 2023, companies will have to report carbon emissions. Even importers to the EU region will have to follow this. For example, a steel maker in India exporting its products to Europe will have to submit additional documents of carbon emission report along with other documents necessary for customs.
Subsequently, importers will have to pay taxes on the basis of carbon that they emit during the steel production process. Taxes are expected to be levied from January 1, 2026.
How prepared is India’s steel sector?
While Indian steel sector is facing several challenges, CBAM comes as an additional disruption in steel exports. To prepare themselves for the CBAM, Indian steel sector will need to develop a blueprint for green steel production. Steel plants in India will have to adopt greener processes to reduce carbon emission levels at par with European standards. However, on an immediate basis, companies will have to equip themselves with carbon emission measuring equipment. So, to produce documents while exporting.
Next steps from the Government of India
The recent media reports suggest that Minister of Commerce and Industry Minister Piyush Goyal mentioned that the government will take necessary actions to protect Indian businesses. At the annual session of the Automobile Component Manufacturers Association of India (ACMA), he further added that the Indian government is in talks with the EU about the impact of CAM on Indian businesses.
He further added that the industry will also have to take steps to decarbonise production processes. Additionally, he noted that the government is discussing a free trade agreement with the EU.
On the other hand, the Finance Minister of India, Nirmala Sitharaman has also expressed concerns over the impact of CBAM on Indian businesses.