Context:
The Union Government is considering bearing 90% of the compliance cost for MSME exporters affected by the EU’s Carbon Border Adjustment Mechanism (CBAM). The impact is expected to be highest on iron, steel, aluminium and other carbon-intensive exports.
Explanation:
- Carbon Border Adjustment Mechanism (CBAM) is the European Union’s carbon border tax on imported goods with high embedded carbon emissions.
- It aims to prevent carbon leakage, where industries shift production to countries with weaker climate regulations.
- CBAM covers sectors such as iron and steel, aluminium, cement, fertilisers, electricity and hydrogen.
- Exporters must report direct and indirect emissions linked to production.
- From 2026, importers may have to buy CBAM certificates based on embedded emissions.
- MSMEs face higher difficulty due to limited capacity for carbon accounting, verification, digital reporting and emission monitoring.
- For India, CBAM may affect export competitiveness, especially in iron and steel.
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EU Carbon Border Tax and India’s MSME Strategy