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					</table><p>A parliamentary committee has asked the government to seek postponement of the application of the <a href="https://european-union.europa.eu/index_en" target="_blank" rel="noopener">European Union</a>’s Carbon Border Adjustment Mechanism (CBAM) to the Micro, Small &amp; Medium Enterprises (MSME) sector by at least three years.</p>
<p>In a recent report, the <a href="https://sansad.in/rs/committees/13?departmentally-related-standing-committees" target="_blank" rel="noopener">Standing Committee on Commerce</a> expressed concern over the potential hindrances posed by tariff and non-tariff barriers raised by the EU and the U.S., which could impede the growth of the MSME sector.</p>
<p>Early last year, India and China <a href="https://www.mercomindia.com/india-voices-concern-over-europes-carbon-tariff-measure-at-wto" target="_blank" rel="noopener">expressed</a> concern over CBAM at the World Trade Organization (WTO). The issue is likely to figure at the WTO’s Ministerial Conference to be held in Abu Dhabi from February 26 to 29.</p>
<p>While acknowledging the noteworthy role played by engineering exports in the overall merchandise exports of India and the prospect of achieving the $300 billion export target by 2030, the standing committee felt that Indian manufacturers in the MSME sector may not have the financial resources to make changes to overcome the challenge posed by CBAM.</p>
<p>To protect the MSME sector from the U.S.’ Expansion Act of 1962 and non-tariff barriers in the form of CBAM, the committee recommended that the government engage at the highest level with the U.S. and EU, respectively, to resolve the matter.</p>
<p>It also recommended putting in place a robust mechanism to support and equip MSMEs to counter the adverse effects of CBAM.</p>
<p>With the European Commission adopting the rules governing the implementation of the carbon tariff on imported goods, the transitional phase of CBAM <a href="https://www.mercomindia.com/eu-adopts-rules-governing-carbon-tariff-measure" target="_blank" rel="noopener">started</a> last October. It will be in force until the end of 2025, with full implementation starting in 2026. CBAM will initially apply to imported products and commodities like cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen.</p>
<p>The carbon tariff measure has governments and exporters of goods from countries outside the EU worried because they fear their competitiveness will be adversely impacted by having to pay a price for the carbon emissions generated during the manufacture of goods. The tariffs on goods manufactured by hard-to-abate sectors like steel and cement are expected to be as high as 35%.</p>
<p>Besides manufacturers in the MSME sector, the Indian steel industry is also likely to face negative consequences of the EU’s carbon tariff measure.</p>


Seek Deferment of CBAM by Three Years, Parliamentary Panel Tells Government


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					</table><p>A recent stakeholder meeting held by Minister of Steel Jyotiraditya Scindia emphasized the importance of a comprehensive approach to deploying renewable energy to decarbonize the steel industry.</p>
<p>Along with the use of renewable energy, the meeting organized by the <a href="https://steel.gov.in/" target="_blank" rel="noopener">Steel Ministry</a> discussed pathways for the industry’s decarbonization through skill development and incentives.</p>
<p>The meeting brought together five of the 13 task forces, all aimed at fostering the green steel ecosystem in India, uniting a consortium of stakeholders, industry experts, and government officials to realize the aim of decarbonization of the steel industry landscape.</p>
<p>The meeting discussed customized decarbonization solutions covering both integrated steel plants and secondary facilities. The meeting also discussed financing options for green steel production, the use of natural gas and syngas instead of coal-based feedstock directly reduced iron plants to cut carbon emissions, and the need to empower educational institutions to meet the industry&#8217;s evolving skill demands.</p>
<p>The meeting was held at a time when the Indian steel industry has been voicing concerns that steel exports to the European Union could become uncompetitive because of the Carbon Border Adjustment Mechanism (CBAM).</p>
<p>During the transitional phase of CBAM, which took effect on October 1, the tariff measure will <a href="https://www.mercomindia.com/eu-adopts-rules-governing-carbon-tariff-measure" target="_blank" rel="noopener">apply</a> only to imported products and commodities like iron and steel, cement, aluminum, fertilizers, electricity, and hydrogen.</p>
<p>The EU rules detail the reporting obligations for importers of CBAM goods and the methodology to calculate embedded emissions released during the manufacture of goods from the source countries.</p>
<p>The Indian government is <a href="https://www.mercomindia.com/government-mulls-mandating-green-steel-public-projects" target="_blank" rel="noopener">considering</a> the enforcement of green steel utilization in public projects as a vital step in reducing emissions and achieving carbon neutrality in the steel industry by 2070. The government has embarked on a string of initiatives to bring down carbon emissions in the steel industry and help it reach net zero by 2070. As a short-term measure, the government is already promoting the use of renewable energy and energy efficiency measures in the steel sector to minimize emissions by 2030.</p>


Deploying Renewable Energy Vital to Decarbonizing India’s Steel Industry


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					</table><p>The European Union has taken one more step towards implementing the Carbon Border Adjustment Mechanism (CBAM), with the <a href="https://commission.europa.eu/index_en" target="_blank" rel="noopener">European Commission</a> adopting the rules governing the implementation of the carbon tariff on imported goods.</p>
<p>The transitional phase of CBAM, which starts on October 1 this year, will be in force until the end of 2025.</p>
<p>The carbon tariff measure has governments outside the EU and exporters of goods from those countries worried because they fear the competitiveness of their products will be dented. They have accused the bloc of being protectionist. India and China earlier this year <a href="https://www.mercomindia.com/india-voices-concern-over-europes-carbon-tariff-measure-at-wto" target="_blank" rel="noopener">raised</a> concerns about CBAM at the World Trade Organization.</p>
<p>The EU describes CBAM as a landmark tool to fight carbon leakage. According to it, carbon leakage occurs when companies based in the EU move carbon-intensive production abroad to take advantage of lower standards or when EU products are replaced by more carbon-intensive imports, undermining the bloc’s climate action.</p>
<p>In CBAM’s transitional phase, the tariff measure will apply only to imported products and commodities like cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen.</p>
<p>The EU rules detail the reporting obligations for importers of CBAM goods and the methodology to calculate embedded emissions released during the manufacture of goods.</p>
<p>In the transitional phase, EU traders will only have to report on the emissions embedded in their imports without making any financial adjustments. The transitional phase will allow time for businesses to prepare for the mechanism and also for the definitive methodology to be fine-tuned by 2026.</p>
<p>The rules specify the specific embedded direct emissions of the goods, which will be determined by converting the attributed direct emissions of the production processes into emissions specific to the goods expressed as CO2e per ton.</p>
<p>The specific embedded emissions of goods produced in an installation can be determined using a carbon pricing mechanism where the installation is located or an emission monitoring system which can include verification by an accredited verifier.</p>
<p>Importers will also have to declare the electricity consumption, expressed in megawatt hours, of the production process per ton of goods produced for embedded indirect emissions associated with the products.</p>
<p>EU importers will have to collect fourth-quarter data as of 1 October 2023, and their first report must be submitted by January 31, 2024.</p>
<p>The rules provide for setting up a CBAM Transitional Registry, a system for filing and managing CBAM reports for reporting declarants.</p>
<p>India has said it would try convincing the EU to honor its carbon certificates to be issued after the Carbon Credit Trading Scheme comes into force. The government had <a href="https://www.mercomindia.com/comments-draft-carbon-credit-trading-program" target="_blank" rel="noopener">sought</a> feedback from stakeholders on the draft carbon credit trading program.</p>


EU Takes a Step Closer to CBAM, Adopts Rules Governing Carbon Tariff Measure


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					</table><p>The <a href="https://european-union.europa.eu/index_en" target="_blank" rel="noopener">European Union</a> has formally informed the World Trade Organization that it has notified the setting up of the Carbon Border Adjustment Mechanism (CBAM), which seeks to put a price on emissions during the manufacture of products imported into the EU.</p>
<p>In a communication to the WTO’s Committee on Trade and Environment, the EU said that the regulation will come into force from October 1, 2023, with the exception of some of its articles which will take effect on December 31, 2024, and January 1, 2026.</p>
<p>The EU will adopt an implementing Act concerning the information to be reported for the transactional period of CBAM from October 1, 2023, to December 31, 2025.</p>
<p>From mid-2023, the EU Commission will launch an information campaign featuring online seminars, physical events, distribution of guidance documents, and direct assistance aimed at assisting third-country operators and importers to the EU in performing all new obligations required by the CBAM regulation and its secondary legislation.</p>
<p>India, China, and many other countries are worried about the impact of CBAM on their exports to the EU. The regulation, seen as a protectionist measure, has got these countries worried that it will make their products uncompetitive.</p>
<p>Both India and China have <a href="https://www.mercomindia.com/india-voices-concern-over-europes-carbon-tariff-measure-at-wto" target="_blank" rel="noopener">raised</a> concerns over the EU&#8217;s move to the WTO. 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 like the carbon regulation that have wide ramifications.</p>
<p>India is also <a href="https://www.mercomindia.com/india-seek-eus-nod-carbon-certificates-new-import-norms" target="_blank" rel="noopener">seeking</a> to convince the EU to honor its carbon certificates to be issued after the Carbon Credit Trading Scheme (CCTS) comes into force. The government has sought feedback from stakeholders on the draft CCTS, which was proposed as part of the Energy Conservation (Amendment) Bill, 2022.</p>
<p>The CBAM will initially apply to products and commodities like cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen that are exported to the EU.</p>
<p>Currently, the regulation will apply to direct carbon emissions. But the EU has <a href="https://www.mercomindia.com/european-unions-greenhouse-gas-emissions" target="_blank" rel="noopener">proposed</a> that CBAM should in the future apply to indirect emissions of greenhouse gases arising from the generation of electricity used to produce the goods to which the regulation applies.</p>


EU Formally Notifies WTO About CBAM Taking Effect from October 1, 2023


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					</table><p>The <a href="https://european-union.europa.eu/index_en" target="_blank" rel="noopener">European Union</a> has proposed that the Carbon Border Adjustment Mechanism (CBAM) should in the future apply to indirect emissions of greenhouse gases arising from the generation of electricity used to produce the goods to which the regulation applies.</p>
<p>The CBAM, which will come into <a href="https://www.mercomindia.com/eus-carbon-deal-accelerate-exporters-transition-renewables" target="_blank" rel="noopener">effect</a> in its transitional phase on October 1, 2023, will only apply to direct emissions of greenhouse gases from the time of production of goods until the import of those goods into the EU.</p>
<p>According to the regulation, the inclusion of indirect emissions would further enhance the environmental effectiveness of the CBAM and its ambition to contribute to fighting climate change.</p>
<p>“Indirect emissions should, however, not be taken into account initially for the goods in respect of which financial measures apply in the Union that compensate for indirect emissions costs incurred from greenhouse gas emission costs passed on in electricity prices,” the regulation says.</p>
<p>During the transitional period, the carbon mechanism requires data to be collected to specify the methodology for calculating indirect emissions. The methodology should consider the quantity of electricity used for the specified production, the country of origin, the generation source, and the emission factors related to that electricity. The aim is to achieve the most appropriate way to prevent carbon leakage and ensure the environmental integrity of the CBAM.</p>
<p>The EU’s decision to go ahead with CBAM has sparked worries among countries exporting to Europe, with criticism that the carbon tariff measure is actually a protectionist tool in disguise.</p>
<p>India is <a href="https://www.mercomindia.com/india-seek-eus-nod-carbon-certificates-new-import-norms" target="_blank" rel="noopener">planning</a> to seek validation of its proposed carbon certificates and the exemption for some micro, medium, and small enterprises from CBAM. Indian officials discussed the CBAM issue with their EU counterparts in Brussels earlier this month.</p>
<p>In March, India <a href="https://www.mercomindia.com/india-voices-concern-over-europes-carbon-tariff-measure-at-wto" target="_blank" rel="noopener">presented</a> a paper at the World Trade Organization on the increasing use of environmental measures as protectionist non-tariff barriers and said it was concerned about CBAM.</p>
<p>The CBAM’s ultimate objective is one of broad product coverage, although it would be prudent to start with a selected number of sectors with a carbon leakage risk. Initially, the following sectors have been identified: iron &amp; steel, refineries, cement, aluminum, organic chemicals, fertilizers, and hydrogen.</p>
<p>While imports of hydrogen are low, the EU feels that the situation will change significantly in the coming years. For the decarbonization of the industry as a whole, it expects the demand for renewable hydrogen would increase.</p>


European Union’s CBAM to Consider Indirect Greenhouse Gas Emissions in Future


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					</table><p>The <a href="https://www.gov.uk/" target="_blank" rel="noopener">UK government</a> has recently opened a consultation on a range of potential policy measures, including a carbon border adjustment mechanism (CBAM) on the lines of the one proposed by the European Union to mitigate future carbon leakage risk.</p>
<p>Besides the proposed carbon tax on imports into the UK, which could dent India’s exports, the government is also mulling mandatory product standards.</p>
<p>According to the consultation documents, CBAM would introduce a carbon price on imported products. This would reflect both the carbon emitted in their production and any gap between the carbon price applied in the country of origin and the carbon price that would have been incurred had they been produced in the UK.</p>
<p>The sectors targeted are cement, chemicals, glass, iron and steel, non-ferrous metals, non-metallic minerals, paper and pulp, refining, fertilizer, and energy generation.</p>
<p>The government has invited responses from companies and representatives from industry and business, including trade associations, importers and exporters of products, small and medium-sized enterprises, supply chain businesses, software houses, customs agents and international partners, and multinational groups. The consultation closes on June 22, 2023.</p>
<p>Besides CBAM, a mandatory product standards (MPS) regime has been proposed setting an upper limit on the embodied emissions for individual products placed on the UK market, or produced in the UK, prohibiting products that are more emissions-intensive than a defined limit. This could apply to both domestically produced and imported products.</p>
<p>“Implemented together, MPS and a CBAM could create an environment with a maximum limit for the embodied carbon of certain, highly polluting products, and a carbon price incentivizing further emission reductions,” the consultation document said.</p>
<p>Last December, the European Parliament <a href="https://www.mercomindia.com/eus-carbon-deal-accelerate-exporters-transition-renewables" target="_blank" rel="noopener">reached</a> a deal to implement CBAM effective October 2023 to incentivize non-EU countries to enhance their climate goals. The regulation will initially cover iron, steel, cement, aluminum, fertilizers, and electricity. It will be extended to some downstream products such as screws and bolts and similar articles of iron or steel.</p>
<p>The proposed carbon tariff measures have alarmed India as they could adversely impact its exporters. India joined China in <a href="https://www.mercomindia.com/india-voices-concern-over-europes-carbon-tariff-measure-at-wto" target="_blank" rel="noopener">opposing</a> the EU’s CBAM at a recent <a href="https://www.wto.org/" target="_blank" rel="noopener">World Trade Organization</a>’s Committee on Trade and Environment (CTE). Earlier, India’s finance minister Nirmala Sitharaman had warned Indian industry to be prepared for the impending tariff walls being considered by developed countries.</p>
<p>At the same WTO meeting, China suggested that members start discussions on CBAM when the CTE meets in June. “Trade policies designed to achieve environmental objectives should be consistent with the fundamental principles and basic rules of the WTO, strike a balance between environmental considerations and trade considerations, and do not constitute protectionist measures or green trade barriers,” China said.</p>


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