Proposed Carbon Tax Won't Affect Trade Ties With India: EU Climate Chief

European Union's climate policy chief Frans Timmermans on Friday said the bloc's proposed carbon tax will not have any negative effect on its trade relationship with India and that it would do nothing that is in violation of World Trade Organisation rules.

The EU plans to implement a carbon import tax of 25 to 30 per cent on high carbon goods such as steel, cement, aluminum, iron, fertilisers, electricity and hydrogen. This has led to concerns about the impact on developing nations heavily reliant on carbon-intensive industries.

The Carbon Border Adjustment Mechanism (CBAM), expected to be introduced in its transitional phase from October, is part of the EU's larger climate strategy which focuses on incentivising member countries to reduce their carbon emissions and adopt greener practices.

"If India fulfills all its ambitions in terms of greening the economy and reducing the carbon footprint and creating comparable footprints to the EU, there is no worry that CBAM will have a negative effect on our trade relationship," Mr Timmermans, who is on a two-day crucial diplomatic mission to India to discuss developments on emission reductions and clean energy transition ahead of COP28 in Dubai later this year, said at a press briefing in New Delhi.

According to media reports, India is likely to challenge the EU's proposed carbon tax at the World Trade Organization (WTO).

Frans Timmermans said one of the reasons why India is considering emissions trading systems is to avoid getting hit by the EU's CBAM.

CBAM has only one goal and that is to avoid carbon leakage, the executive vice president of the European Commission said.

Carbon leakage can arise when producers shift base to jurisdictions with less stringent climate policies.

"And if India makes progress, as it is doing now, into the direction of having a carbon footprint that is comparable to that of EU producers in these five areas, then India will be under CBAM, but it will not face any penalties. It is the comparability of carbon footprint that counts," Mr Timmermans said.

"Secondly, we will have this trial period (October 2023 to December 2025) that will allow us to see whether there are undesired effects, then we can correct it... And we will be in very close contact with India to see what the effects are. Let's not make any assumptions on levies and cost for Indian businesses. It's much too early to say that. Let's use the instrument we have now, the India-EU Trade and Technology Council, to have a constant dialogue about this and to at least have enough early warning signals," he said.

The EU's does not intend to create a situation that would be perceived as protectionist and it will do nothing that will be violation of the WTO rules, the executive vice president of the European Commission said.

Asked whether the EU and India will take forward the proposal to phase-down all fossil fuels at COP28, Mr Timmermans said parties should focus on the reduction of all unabated fossil fuels.

"It is not our intention to single out coal. Our intention is to address all fossil fuels. Obviously, some are more polluted than the others, and some are already phasing out in some parts of the world... So, to reach consensus, the best place is what India has proposed -- target all unabated fossil fuels," he said.

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