With the Damocles’ sword of the European Union’s Carbon Border Adjustment Mechanism (CBAM) hanging over Indian exporters, the government is planning to seek validation of its proposed carbon certificates and the exemption for some micro, medium, and small enterprises (MSME).

According to a PTI report, officials of Finance, Commerce, Power, Mines and Steel, and industry representatives met this week to discuss the strategy to counter the EU’s move to subject imports to a carbon tax of up to 35% starting 2026.

The CBAM will initially apply to imported products and commodities like cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. The implementation of its transitional phase will begin on October 1, 2023.

India will seek to convince the EU to honor its carbon certificates to be issued after the Carbon Credit Trading Scheme (CCTS) comes into force. The Ministry of Power has already sought comments from stakeholders on the draft CCTS.

Under CCTS, each carbon credit certificate issued by the government to registered companies and individuals would represent the reduction or removal of one ton of CO2 equivalent.

An Indian Carbon Market will also come into force to decarbonize the economy by pricing the greenhouse gas emissions by trading carbon credit certificates.

The CBAM has Indian exporters worried because their products may lose the competitive edge due to the carbon tax they would have to pay.

India and China have already voiced their concerns over CBAM at the World Trade Organization. While India presented a paper on the issue at the WTO’s Committee on Trade and Environment, China introduced a proposal to deepen multilateral discussions on the trade aspects and implications of environmental measures with wide ramifications.

It suggested that members start discussions on CBAM at the June meeting of the committee.

After the EU, the United Kingdom is also proposing a similar measure. In April, it opened a consultation on its version of CBAM, which would introduce a carbon price on imported products.

The PTI report said India may raise the CBAM issue at the India-EU Trade and Technology Council meeting in Brussels on May 15-16.

In February this year, the Council established working groups on green and clean energy technologies and trade, investment, and value chains. These groups will work to resolve identified trade barriers and global trade challenges by promoting cooperation in multilateral fora.