Introduction
Mr. Shubham Thakur: Hello everyone, I’m Shubham Thakur, a sustainability and CBAM expert. Today, we’re joined by Joydeep Ghosh and Rajat Verma from the Centre for Social and Economic Progress (CSEP) to discuss their recent paper on the distributional implications of the EU’s Carbon Border Adjustment Mechanism (CBAM) on India.
Mr. Joydeep Ghosh: Thank you for the invitation. Our study uses a macroeconomic model to analyze the impacts of CBAM on energy-intensive sectors like iron, steel, and cement. While these sectors are crucial for exports to the EU, we found there are potential negative impacts on the economy that need to be addressed.
Mr. Rajat Verma: To add to that, we modeled three scenarios: CBAM alone, domestic carbon pricing, and a hybrid of both. We found a marginal negative impact on India’s GDP, ranging from 0% to 0.03% from 2026 onwards. However, implementing a domestic carbon tax allows the government to retain revenue—about 0.5% of GDP—which can then be reinvested into the economy.
Mr. Shubham Thakur: With iron and steel accounting for 90% of the impact, how can these sectors cope?
Mr. Joydeep Ghosh: It really depends on the firm’s carbon intensity. Those that invest in decarbonization early will maintain a competitive advantage. If they don’t innovate, they may face significant challenges.
Mr. Rajat Verma: The coal sector will likely feel the highest hit. However, this pressure is pushing industries toward cleaner alternatives, like renewable electricity, which is a positive byproduct of the policy.
Mr. Shubham Thakur: What are the biggest challenges for Indian suppliers?
Mr. Joydeep Ghosh: Infrastructure and accurate data reporting are major hurdles. India is roughly 20 years behind Europe in terms of carbon pricing maturity, so it is a long, difficult process .
Mr. Rajat Verma: Accounting is definitely a challenge, but it also opens opportunities for consultancy firms to support businesses. We also see potential pressure on the EU to return collected revenue to developing nations, which could help accelerate decarbonization efforts here.
Mr. Shubham Thakur: How does this change trade patterns?
Mr. Joydeep Ghosh: The EU market is too lucrative to abandon, so companies are incentivized to adapt. If they fail to decarbonize, they might move to other markets, or other regions like Africa might capture that EU market share due to their proximity.
Mr. Rajat Verma: Regarding prices, consumers in both India and the EU will likely face increases. CBAM is essentially designed to protect EU suppliers, making them more competitive than their counterparts in developing nations.
Mr. Shubham Thakur: Finally, what is the role of technology?
Mr.Joydeep Ghosh: Technologies like Carbon Capture and Storage (CCS) and green hydrogen are vital, but expensive. Government support is essential to implement these at scale .
Mr. Rajat Verma: Exactly. And for the way forward, I recommend Indian suppliers focus on three things: implementing domestic carbon pricing, exploring new markets, and investing heavily in R&D.