A carbon tax on imports that kicks in next month for the European Union will lead to a slump in Indian exports of steel to the bloc, forcing producers to look for alternative destinations, Reuters has reported, citing industry executives and analysts.
The so-called Carbon Border Adjustment Mechanism, or CBAM, was devised to put European industrial producers on a more equal footing with non-European peers that enjoy much laxer emission-related regulations, making them more competitive than European companies.
The corporate sector lobbied with the European Union’s leadership for concessions that would provide a much-needed boost to their own competitiveness, and the Carbon Border Adjustment Mechanism was the result of that effort.
The CBAM will cover a wide range of imports, including, besides steel, also cement, fertilizers, and electricity.
“We recognise that we have to do environment-friendly production and companies are gearing up to comply, but they are also looking at alternative markets too,” a former top government official in New Delhi in charge of steel told Reuters. India is the world’s second-largest steel producer after China and exports as much as 66% of its output to the European Union.
This is about to drop sharply next year because India’s steel manufacturing is done in blast furnaces fueled with coal, which is incompatible with the European Union’s emission reduction plans. The Reuters report notes steel mills could switch to electric arc furnaces, which have a lower emissions footprint but such a switch would take time and money.
“Most of the companies are yet figuring out a way to deal with CBAM,” one analyst told Reuters. “In the near term, it is expected to slow down India’s exports to EU,” Ravi Sodah, from Elara Capital, also said.
The timing of the CBAM’s entry into effect is a little unfortunate for Europe, which is currently trying to rearm—an endeavor that involves a lot of steel.
By Irina Slav for Oilprice.com
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