Context:
India’s steel exports are facing challenges due to the European Union’s Carbon Border Adjustment Mechanism (CBAM), prompting the government to announce support measures for the domestic steel industry.
Key Highlights:
- Impact on Indian Steel Exports
- Approximately two-thirds of India’s steel exports are destined for European markets.
- The EU’s CBAM policy imposes additional charges on carbon-intensive imports, affecting India’s competitiveness.
- Government Support Measures
- The Union Steel Ministry has assured support to mitigate the impact of CBAM on Indian steel exporters.
- The government is exploring policy interventions to strengthen the sector’s export competitiveness.
- EU Carbon Border Adjustment Mechanism
- CBAM was announced by the European Union in 2021.
- It aims to tax imports of carbon-intensive products to prevent carbon leakage.
- The mechanism applies to products such as:
- Steel
- Cement
- Aluminium
- Fertilizers
- Electricity
- Hydrogen.
- Reporting and Compliance Requirements
- Importers must report the embedded carbon emissions of their products.
- Additional carbon tariffs may be imposed if emissions exceed EU benchmarks.
Relevant Prelims Points:
- Carbon Border Adjustment Mechanism (CBAM)
- A carbon pricing system applied to imports into the EU.
- Designed to ensure foreign producers face similar carbon costs as EU industries under the EU Emissions Trading System (ETS).
- Carbon Leakage
- The relocation of carbon-intensive industries to countries with weaker environmental regulations.
- India’s Steel Industry
- India is the second-largest steel producer in the world.
- Major producers include SAIL, Tata Steel, JSW Steel, and Jindal Steel.
Relevant Mains Points:
- Economic Implications for India
- CBAM could increase export costs for Indian steel manufacturers.
- It may reduce competitiveness in European markets, which are key export destinations.
- Trade and Climate Policy Intersection
- CBAM represents the growing use of climate policies as trade instruments.
- Developing countries argue such mechanisms may act as non-tariff barriers to trade.
- Opportunities for India
- Push for green steel production technologies such as hydrogen-based steelmaking.
- Expand energy efficiency and renewable energy usage in steel plants.
- Diversify export markets beyond the EU.
- Way Forward
- Develop low-carbon steel manufacturing technologies.
- Engage in trade negotiations and climate diplomacy with the EU.
- Promote green industrial policies and carbon accounting systems.
- Increase investment in renewable energy integration in heavy industries.
UPSC Relevance:
• GS Paper 3 – Economy: Global trade policies, industrial competitiveness, and export challenges.
• GS Paper 2 – International Relations: Trade relations with the European Union and climate diplomacy.
• GS Paper 3 – Environment: Carbon pricing mechanisms and low-carbon industrial transitions.