EUROPE'S CARBON BORDER TAX TRIGGERS RUSH FOR GREEN POWER IN INDIA

Why in the News?

CBAM Impact: Indian steel and metal companies are scrambling to secure renewable energy deals to reduce carbon emissions ahead of Europe’s Carbon Border Adjustment Mechanism (CBAM) set to begin in 2026.
Supply Chain Focus: The demand for green power extends beyond large firms to their suppliers, creating a rush to minimize emissions across entire supply chains.

Renewable Energy Demand Surge:

Capacity Shortage: Renewable energy companies in India, such as Avaada and Sunsure, report a significant demand-supply mismatch, with new projects already sold out until 2026.
Early Commitments: Companies are making early commitments for future green energy projects to avoid potential penalties under CBAM, leading to an increase in tariffs.

CBAM and Industry Response

Sector-Specific Levies: CBAM will initially target six sectors, including steel and aluminum, and levy taxes on carbon emissions exceeding European benchmarks.
Industry Initiatives: Indian steelmakers like JSW and Tata Steel are investing in renewable energy, while aluminum producers like Hindalco and Vedanta are also ramping up green energy usage to comply with future regulations.

Source: UGI

About Carbon Border Adjustment Mechanism (CBAM) Overview

What is CBAM?

The Carbon Border Adjustment Mechanism (CBAM) is a European Union (EU) tariff on carbon-intensive products.

Purpose:

To ensure a fair price for the carbon emitted during the production of goods entering the EU.
Encourage cleaner industrial practices in non-EU countries.
Ensure that the carbon price of imports aligns with the carbon price of domestic production in the EU.

Timeline and Coverage:

CBAM is in a transitional phase from 2023 to 2025, with only reporting obligations.
Full implementation, including financial obligations, begins in 2026.
Initially covers sectors like iron and steel, cement, fertilizers, aluminum, electricity, and hydrogen.

How it Works:

EU importers will buy carbon certificates matching the carbon price that would have been paid if the goods were produced locally.
The certificate price is based on EU carbon credit market auction prices.
The required number of certificates is calculated yearly based on the quantity of imported goods and their embedded emissions.
Importers must declare the emissions in their imports and surrender the corresponding certificates annually.
Deductions are allowed if a carbon price was already paid during production in the exporting country.
Countries with equivalent carbon pricing regimes can export to the EU without CBAM certificates.

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