How do the European Union’s Carbon Border Adjustment Mechanism (CBAM) challenges impact Indian exporters. (12-01-2024)

·         Economic Impact: Higher Costs

·         Compliance Complexity: Mandated Trials

·         Perceived Protectionism: Trade Relations

·         Market Access Barriers: Higher Costs

·         Competitive Disadvantage: Carbon Footprint

·         Market Diversification: Explore Alternatives

·         Sustainable Investment: Green Technologies

·         Advocacy: Multilateral Forums

·         Technology Upgrade: Cleaner Practices

·         Collaboration: Capacity Building

• Economic Impact: CBAM’s imposition of emission tariffs on imports raises costs for Indian exporters, impacting the competitiveness of goods in the European market.
• Complex Compliance: Mandated trials since October 2023 have added complexity, demanding carbon-intensive sectors to share emission data with the EU, leading to compliance challenges.
• Perceived Protectionism: Indian exporters view CBAM as a protectionist non-tariff barrier, hindering smooth trade relations.
• Market Access Barriers: CBAM may lead to increased market access barriers in the EU for Indian goods due to higher costs associated with emission tariffs. This could limit the competitiveness of Indian products in the European market, leading to a decline in export volumes.
• Competitive Disadvantage: Industries with a higher carbon footprint, such as steel production, may face a significant competitive disadvantage under CBAM.

Strategic Solutions for Indian Exporters:

·         Diversification of Markets: Given the stringent emission requirements in the EU, exploring alternative markets in Latin America or Africa can provide relief for exporters while mitigating the impact of CBAM.

·         Investment in Sustainable Practices: Proactive investment in sustainable practices, including the adoption of renewable energy sources and green technologies, allows Indian exporters to align with global environmental standards.

·         Advocacy at Multilateral Forums: The Indian government’s consideration of an appeal at multilateral forums, grounded in the “common but differentiated responsibility” principle, signifies a diplomatic approach to address protectionist concerns.

·         Technology Upgradation and Innovation: Adopting cleaner technologies and enhancing energy efficiency can help mitigate the impact of CBAM, making products more competitive in the EU market.

·         Collaboration and Capacity Building: Initiatives such as joint research projects, skill development programs, and knowledge-sharing platforms can empower Indian exporters to meet the emission standards set by CBAM and enhance their global competitiveness.