India-EU: global dynamics

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Last Updated08/07/2022

The European Union is at the forefront of commitment to net-zero aiming to become the first carbon-neutral region in the world by 2050.
European Union Green Deal: To transform EU society into a fair and wealthy one with a modern, resource-efficient and competitive economy.

‘Fit-for-55’ package: Communication of EU’s 2030 climate targets introduced Carbon Border Adjustment Mechanism (CBAM) - a carbon-pricing system proposed for imports into the EU.
Mechanism: taxing imported goods based on the difference b/w carbon used in production of domestic and imported goods.
In the initial phase, five CITE (Carbon Intensive and Trade Exposed) sectors such as iron and steel, aluminum, cement, fertilizers and electricity will be taxed under CBAM.
Objective:
Reduce carbon leakage
Create a level playfield for EU producers
Encourage producers in other countries to adopt cleaner technologies.

Legality of CBAM pointing its conflict with World Trade Organization (WTO) and United Nations Framework Convention on Climate Change (UNFCCC) norms
It encourages protectionism.
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EU is India’s third largest trading partner, while India is EU’s 11th largest trading partner.
2019-20: India-EU trade accounted for 11.1% of total Indian trade in goods
1.9% of EU’s total trade in goods(2020) came to India.
India exports almost 14% of its global exports to the EU.

India and EU both are committed to climate change.
Recent progress in India-EU alliance opens prospects of a customised partnership and mutual growth.
Rather than tax on exports to EU as proposed in CBAM, both can invest in cleaner and greener technologies in India and help in cleaning up production in India.
Such partnership will ensure that both India and EU have their agendas of economic growth and sustainability fulfilled.