India is poised to adopt the European Union's (EU) default values for carbon emissions during the transition phase of the EU’s Carbon Border Adjustment Mechanism (CBAM). The move comes as the country prepares its own verification system for assessing carbon emissions in the production of items like steel and aluminium for export. With no financial liability until 2026, Indian officials see this period as an opportunity to develop a domestic system compliant with CBAM.
India is gearing up to align with the EU’s pioneering CBAM during its transitional phase, which commenced on October 1, 2023. The CBAM is designed to price carbon emissions from the production of certain goods entering the EU, effectively extending the EU's carbon pricing to imports. It aims to level the playing field between EU producers, who are subject to carbon pricing, and international competitors.
During this interim period, India is expected to agree to the EU's default values for carbon emissions from the production of specific items, including steel and aluminium. This decision allows India time to prepare and implement its own carbon verification system. Indian exporters will need to report the embedded carbon in their exports to the EU until the end of 2025, after which the EU will start levying a carbon tax starting January 2026.
With India's carbon verification and accreditation system still under development, officials recognize the complexities in calculating precise carbon emissions. In the interim, it has been suggested that exporters use the EU's default values for reporting purposes. This approach buys time for India to establish a system that complies with the CBAM requirements.
The steel and aluminium industries in India, identified as likely to be the most affected by CBAM, face potential additional levies of 20-35% if compliance with the EU standards is not met. This underscores the urgency for India to develop a system that can accurately report carbon emissions to avoid these levies.
The EU is expected to release secondary legislation by the end of 2024 to refine the CBAM, incorporating adjustments and rules to consider the actual carbon price paid in non-EU countries. This will include the accreditation of verifiers and measures to prevent circumvention of the rules.
India's interim acceptance of the EU's default carbon values is a pragmatic step towards compliance with the CBAM. This period of adjustment provides a critical window for India to develop a robust system for carbon verification. The successful integration into this new carbon pricing framework will be essential for maintaining the competitiveness of Indian exports in the EU market.