EU-India advance cooperation on CBAM

This week, from 1-2 July, Director-General of the European Commission Gerassimos Thomas led a mission of Directorate-General for Taxation and Customs Union (DG TAXUD) officials to New Delhi. He met with several key governmental counterparts and industry stakeholders covering a wide range of Tax and Customs matters while focusing on the EU Carbon Border Adjustment Mechanism (CBAM). He highlighted CBAM’s environmental objectives, design, timeline, and opportunities for the Indian industry. Director-General Gerassimos Thomas welcomed India’s plans to decarbonise its economy, underlining the shared commitment to collaborate with India in their decarbonisation efforts. 

The Director-General said: “My mission was an excellent opportunity to have direct, in-depth, and meaningful interactions with my Indian counterparts and business representatives on a wide range of tax and customs matters, as well as CBAM. The importance of EU-India relations is growing. Both sides want to deepen this relationship to benefit business. Europe is a net importer of CBAM goods and wants to make sure that we continue importing goods with the possible lowest carbon intensity to contribute to decarbonisation at global level. CBAM makes sure that imported goods are treated equally to goods produced in the EU. It does not discriminate and has a very-gradual phase-in to give maximum predictability for investors and business.”

The visit was an opportunity to listen, learn and improve. To listen to the challenges that Indian businesses face when implementing CBAM. To learn, for example, if and how Indian Micro-, Small and Medium-sized Enterprises (MSMEs) are possibly affected (as the CBAM measure normally affects only big enterprises). And to reiterate and explore jointly efforts to adapt and improve the CBAM measure. Technical meetings with the Ministry of Power including BEE (Bureau of Energy Efficiency) will continue. An assessment report on the transition period will be submitted to Council and the European Parliament before the end of next year and will be public thereby providing the opportunity to Indian industry and authorities to comment and discuss with the European Commission the next steps.  Above and over CBAM, the visit confirmed the mutual interest in deepening the exchanges on respective carbon trading markets, pricing mechanisms and the EU cooperation with India in the domain of energy efficiency, renewables and clean tech. 

On taxation the Director General discussed with his Indian government counterparts the Two-Pillar Solution to address the tax challenges of the digitalisation of the economy. India confirmed its commitment to Pillar 2. Regarding the UN Framework Convention on international tax cooperation it was mutually agreed that overlap between the different tracks should be avoided. 

The EU and India have a long-standing Customs Cooperation (CCMAA Agreement) since 2004. Director-General Gerassimos Thomas used this week’s interactions to focus on the latest challenges of customs: cross-border e-commerce and designer drug precursors. India agreed to reinforce the bilateral ties on this and have closer cooperation on notably designer drug precursors under the existing CCMAA Agreement. Ongoing negotiations for an EU-India Free Trade Agreement (FTA) include an upgrade of this customs cooperation. 

To strengthen partnerships, several meetings were held during this visit with Indian Ministries and with different departments therein, including the Ministry of Finance (on tax matters with the Secretary of the Department of Economic Affairs and G20 Sherpa, Mr. Ajay Seth, and, separately, with the Secretary of the Department of Revenue, Mr. Mr. Sanjay Malhotra, and, on customs matters, with the Chairman of Central Board of Indirect Taxes and Customs, Mr. Sanjay Kumar Agarwal), also with the Secretary of the Ministry of Power(including the Bureau of Energy Efficiency, BEE) Mr. Pankaj Agarwal, with the Secretary of the Ministry of Steel, Mr. Nagendra Nath Sinha, with the Secretary of the Ministry of Commerce and Industry, Mr. Sunil Barthwal, with the Additional Secretary  of the Ministry of Environment, Forest and Climate Change, Mr. Naresh Pal Gangwar and with the Additional Secretary of the Ministry of New and Renewable Energy, Mr. Sudeep Jain to provide the latest updates. 

The Director-General also met with key industry leaders from the EU and India in several different settings. The stakeholder engagement organised by the EU Delegation in co-operation with the Confederation of Indian Industry (CII), was a unique opportunity to engage with more than 120 business representatives. This was followed by a large technical gathering with EU CBAM experts and a closed-door discussion between the Director-General and senior Indian industry representatives. A luncheon engagement on CBAM with select senior Indian business representatives was also organised by the Federation of Indian Chambers of Commerce and Industry (FICCI). In addition, the Director-General met with high-level representatives of EU businesses from the Federation of European Business in India (FEBI) to engage on matters affecting their operations in India with respect to customs and taxation matters. This intense engagement with industry leaders were particularly insightful. It offered a good opportunity for Director-General Gerassimos Thomas to hear directly from industry stakeholders and learn more about their operational challenges of CBAM aspects and suggestions for a more effective CBAM and also the challenges and opportunities for EU business in India.

Background

The EU’s Carbon Border Adjustment Mechanism (CBAM) is the EU's tool to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries. By confirming that a price has been paid for the embedded carbon emissions generated in the production of certain goods imported into the EU, the CBAM will ensure the carbon price of imports is equivalent to the carbon price of domestic production, and that the EU’s climate objectives are not undermined. The CBAM is designed to be compatible with WTO rules in particular by treating all goods imported and produced in the EU in a non-discriminatory way and on their own merits. 

CBAM will apply in its definitive regime from 2026, while the current transitional phase lasts between 2023 and 2025. A gradual introduction of the CBAM from 2026 to 2034 will be aligned with the phase-out of the allocation of free allowances under the EU Emissions Trading System (ETS) acting as a driver for EU companies to decarbonise their production faster. CBAM ensures an equal treatment of goods across countries and companies and is designed not be discriminate between products with similar embedded emissions. It is applied at product level giving thereby the opportunity to producers worldwide to improve the sustainability of their production routes. The scope of CBAM is also initially be limited to six sectors: iron and steel, aluminium, cement, fertilizers, electricity and hydrogen. Embedded emissions will be calculated at product level instead of at installation level. In the case if steel and aluminium it covers scope 1 emissions only while in the case of cement and fertilisers it covers scope 1 and 2 emissions.

In India, exchanges also included India’s strategy to become carbon neutral by 2070 by enhancing energy efficiency and introducing the Carbon Market Trade Scheme that will apply to four energy intensive sectors from 2026. In this context, the CBAM mechanism can help to monitor and reduce emissions as well as to collect revenues to support a fair and green transition of the economy. The EU is engaging with India to ensure the effective and seamless implementation. The EU is also working during its transitional period to learn and fine tune the system in view of reducing the administrative burden and simplifying it in view of the launch of the definitive period from 2026. Both parties declared the mutual interest to engage further at technical level on CBAM and to keep a dialogue during the current transitional period on CBAM’s impact on Indian companies.

More information about CBAM can be found on the dedicated website.