The government is considering levying a carbon tax on imports from countries with high per capita carbon emissions looking to counter rich nations’ environment taxes, said people aware of the matter. Inter-ministerial discussions on such a levy have begun and a final call will be taken shortly, they said.
The move comes in the backdrop of the European Union’s Carbon Border Adjustment Mechanism (CBAM).
“Preliminary talks are on,” a government official said on condition of anonymity, adding that deliberations are on among the ministries of environment, forest and climate change, finance, and commerce and industry to devise such duties based on ‘polluter pays’ principle.
The official said there is a thinking within the government that there is a need for alternative duties on products coming from high per capita carbon emission nations, something like India’s own carbon border tax.
The government is also deliberating the issue of parity in carbon emissions calculation methodology and carbon pricing with the EU’s CBAM, which is set to kick in less than three months, said people in the know. It has begun an exercise to differentiate between products based on embedded emissions and to study greenhouse gas emissions standards across geographies, they said.
Under CBAM, non-EU steel producers are required to report direct and indirect emissions.
The mechanism will translate into a 20-35% tax on select imports into the EU from January 1, 2026. From that date, EU importers will have to declare and purchase CBAM certificates to cover the emissions associated with producing imported steel products.
Besides CBAM, the move by advanced economies to impose green taxes such as the US’ Inflation Reduction Act to establish green technology industries and the EU’s anti-deforestation law have made the developing and emerging economies including India wary of such measures.
Though the EU has said that CBAM is part of its climate action efforts, countries like India are of the view that it is a trade-related measure.
“The issue of parity in carbon emissions calculation methodology, carbon pricing and mobilisation of funds under Multilateral Environment Agreements is also being discussed,” the official said.
Trade experts have favoured India’s own carbon tax on all imports and locally produced goods based on a per capita basis instead of total emissions.
“Developed countries will have to pay heavy tax if it is on a per capita basis. India can also impose punitive tariffs on exports from such countries,” said an expert, who did not wish to be identified.