With less than 10 days for the European Union’s carbon tax compliance process to start, trade experts have suggested the country should consider imposing retaliatory customs duties in a calibrated manner on certain EU goods.
The government has held industry consultations on the carbon tax but has not indicated the measures to deal with the situation.
The European Union (EU) has decided to impose a carbon border adjustment mechanism (CBAM) from January 2026.
But its compliance starts from October this year as businesses exporting carbon-intensive goods such as steel, aluminium, cement and fertiliser will have to share detailed production data from next month with the EU authorities.
The retaliation measures, a report by thinktank GTRI said, offer several advantages, including rapid implementation.
India can easily adjust product lists and tariff levels to mirror the actions of the EU or any other partner country precisely.
"Use a calibrated retaliation mechanism (CRM) to retaliate in equal measure. We have done it before," GTRI co-founder Ajay Srivastava said.
In March 2018, when the US imposed import tariffs on steel and aluminium, India increased tariffs on 29 specific US products.
This involved precise calculations, ensuring that India collected equivalent revenue from US products as the US did from Indian steel and aluminium.
"Moreover, it is essential to recognise that CBAM is just one of several schemes that could negatively affect Indian exports. The EU has also introduced the Deforestation Regulation, Foreign Subsidies Regulation (FSR) and Supply Chain Due Diligence Act (SCDDA). CRM, if adopted, could be used to counteract the impact of these schemes on Indian exports," the report said.
Srivastava said the EU claims CBAM is meant to prevent carbon leakage and reduce emissions, but it argued that this is a flawed argument. The EU's introduction of CBAM is seen as serving three purposes: protecting local industries, generating substantial revenue and enabling a trillion-dollar subsidy initiative.