India's efforts to decarbonize its cement and aluminium sectors are increasingly vital as the European Union's Carbon Border Adjustment Mechanism (CBAM) has come into effect. This mechanism imposes a carbon levy on imports of carbon-intensive goods, potentially increasing costs for Indian exporters in sectors like steel, aluminium, and cement.
The EU's Carbon Border Adjustment Mechanism (CBAM)
The EU's CBAM is designed to ensure that importers of goods into the EU pay a carbon price equivalent to that faced by domestic producers within the EU. Importers are required to purchase CBAM certificates reflecting the carbon emissions embedded in their products. If the exporting country has already implemented a carbon pricing system, the EU will only charge the difference. Initially, CBAM applies to goods such as cement, iron, steel, aluminium, electricity, and hydrogen. The EU plans to expand the tax to include car parts, refrigerators, and washing machines from January 1, 2028.
India's Decarbonization Efforts
Recognizing the potential impact of CBAM, India has initiated roadmaps for decarbonizing its aluminium, cement, and MSME sectors. These roadmaps aim to guide the country towards a net-zero emission future through sustainable processes. NITI Aayog, the Indian government's think tank, has released reports detailing these decarbonization strategies.
For the cement sector, the roadmap prioritizes the use of refuse-derived fuels, clinker substitution, scaling up Carbon Capture, Utilization and Storage (CCUS), and the effective implementation of a carbon credit trading scheme. The goal is to reduce carbon intensity from 0.63 tCO₂e per tonne of cement to approximately 0.09-0.13 tCO₂e per tonne by 2070.
The decarbonization roadmap for the aluminium sector identifies a three-phased approach:
- Short term: Transition to renewable energy-round the clock (RE-RTC) power and enhanced grid connectivity.
- Medium term: Adoption of nuclear power.
- Long term: Integration of CCUS.
The roadmap for green transition of MSMEs focuses on the deployment of energy-efficient equipment, adoption of alternative fuels, and integration of green electricity.
Potential Benefits for India
By proactively decarbonizing its industries, India can mitigate the tariff burden imposed by CBAM on its exports. Aligning with EU methodologies for measuring emissions and leveraging existing carbon pricing mechanisms like the Carbon Credit Trading Scheme (CCTS) could further offset costs incurred from CBAM liabilities. These steps can improve the competitiveness of Indian exports and ensure continued access to the EU market.
Challenges and Concerns
Despite these efforts, challenges remain. Developing countries like India argue that uniform carbon standards do not account for historical responsibilities and differing economic capacities. Some have described the CBAM as "unfair" and "discriminatory," potentially undermining trust and increasing the cost of climate action for developing nations. India estimates that CBAM could add an average tax burden of around 25% on affected exports to the EU.
Looking Ahead
As CBAM implementation progresses, India may need to negotiate more favorable terms with the EU, potentially including recognition of its existing carbon pricing measures and financial support for decarbonization efforts. Investment in green technologies and renewable energy sources will be crucial for long-term competitiveness. Successfully navigating the challenges posed by CBAM will require a multi-faceted approach involving policy reforms, technological innovation, and diplomatic engagement.
