Latest news with #CarbonBorderAdjustmentMechanism
Mint
2 days ago
- Business
- Mint
India is working with multilateral bodies on climate funding, says Nirmala Sitharaman
New Delhi: India is continuously working with multilateral institutions to make sure they have enough leverage with their funds to finance the common cause of climate action, even as countries like itself, having committed to a greener future, are having to find their own resources in the absence of global funding, finance minister Nirmala Sitharaman said on Thursday. Speaking at an event with students of Delhi University, Sitharaman also highlighted that indigenous defence manufacturing was an opportunity for India in the light of Operation Sindoor, the codename for India's strike against terrorist camps in Pakistan and Pakistan-occupied areas on 7 May. Sitharaman said the adverse impact of climate change on economic growth had aggravated the issue and raised more complex issues over the last two years. She said previously, all nations could meet the climate-related targets they had set for themselves using domestic funding, as well as funding from global and multilateral institutions. But the worsening climate crisis has left each nation on its own, said Sitharaman. The finance minister said each country has to rely on its own domestic funding to shift to cleaner energy sources and manufacture greener products to export. In this effort, she said the government has continued to work with multilateral institutions to raise more funds to help developing nations. "Today, with many countries having understood the cost of moving from fossil fuels to renewable energy, they are asking themselves this question—whether it is possible for them," said Sitharaman. She added that during the transition period from fossil fuels to renewable energy, many states looked for greener alternatives such as natural gas. Also, issues such as how green exports are have become a trade issue, said Sitharaman, referring to policies such as the Carbon Border Adjustment Mechanism (CBAM) put in place by the European Union. "So the pressure on countries like India, which successfully completed complying with the COP21 regulations, was mounting. And you already are proving that you are shifting towards renewable energy. But now it is very clear, that it is just you and your funds. No funds are available yet globally. So it is a question of how speedily you can move towards greening yourself and looking at cutting down carbon emissions," said Sitharaman. "We are negotiating to make sure that global multilateral institutions will have leverage with their funds so that they can use them for a common cause, a public good," she added. Sitharaman also said India's indigenous defence production had shown significant progress, compared to the past when all the country's weapons were imported. "From that stage to where we are today, most of what is being used by defence personnel today is made in India," she said. While India continues to import weapons, it still makes its own products, which integrate seamlessly among the three arms of the military—the army, the navy, and the air force—and work well with imported technology. India's systems in defence today are able to integrate equipment coming in from elsewhere, the minister said. 'They can talk to our operational systems, and our operational systems are capable of functioning on their own, and between the three forces—the army, navy, and air force—there is that interoperability," said the finance minister. The minister also said that while some states are actively engaging in capital expenditure with their own funds, others are relying primarily on the Union government funds. Since the covid pandemic, there has been a realisation of the multiplier effect of capital expenditure on growth, suggesting that capital expenditure can significantly accelerate economic growth, the minister added.
Business Recorder
3 days ago
- Business
- Business Recorder
CBAM, carbon trap, and impact of irrational gas policies
The EU's Carbon Border Adjustment Mechanism (CBAM) is now a pressing challenge for exporters worldwide. By pricing the carbon content of imports, CBAM ensures companies outside the EU face the same climate costs as European manufacturers under the EU Emissions Trading System (ETS). It is a key part of the EU's goal to be carbon neutral by 2050, preventing 'carbon leakage' ensuring that all carbon emissions - regardless of origin - are equally penalized. In its first phase (2023–2025), the CBAM targets high-carbon sectors such as iron, steel, cement, aluminum, and fertilizers. However, from 2030 onwards, textiles are expected to be included, posing serious implications for textile manufacturing countries. While textiles are not as energy-intensive as the sectors currently covered under CBAM, the policy could still undermine Pakistan's export competitiveness, given the dependency on textile export revenue. With the EU as Pakistan's largest export market and textiles as its major export, future market access will increasingly depend on the carbon footprint of Pakistani goods. Given the price-sensitivity and highly elastic nature of textiles, even marginal cost increases from carbon tariffs could lead to a noticeable drop in demand. For Pakistan, the risk of losing competitiveness is especially urgent due to three interrelated structural challenges in its industrial sector. First, industrial emissions in Pakistan have steadily risen over the past five decades, driven by a growing reliance on coal. This shift could make the country's manufacturing base increasingly carbon-intensive and less competitive in a climate-conscious global market. Second, Pakistan is a net importer of carbon emissions - an often overlooked aspect of its climate profile. The carbon embedded in imported raw materials and intermediate goods adds to the emissions footprint of its export value chains, inflating the overall carbon intensity of its final products. Third, recent energy reforms - such as the gas levy and the proposed CPP levy legislation under IMF conditionalities - appear designed to push industries away from cleaner, gas-based self-generation toward the more carbon-heavy national grid, risking an increase in emissions per unit of output. Together, these trends not only raise Pakistan's exposure to CBAM-related costs but also risk non-compliance with international climate obligations under the UNFCCC, the Paris Agreement, and Sustainable Development Goals (particularly SDG 7 on clean energy and SDG 13 on climate action). In an era where climate standards are becoming a precondition for access to global markets, Pakistan's energy trajectory - marked by rising emissions, imported carbon, and coal reliance - could undermine its export competitiveness and expose it to carbon and trade penalties if left unaddressed. Coal reliance and accelerating carbon emissions in Pakistan: Pakistan's emissions profile underscores the urgent challenge ahead. Coal power, which accounts for 40% of the country's energy mix, is a significant contributor to rising emissions. Despite its environmental costs, Pakistan remains heavily reliant on coal imports due to its low cost and CPEC-linked investments that have deepened this dependence. However, this reliance clashes with the global shift toward carbon accountability. Over the past five decades, carbon emissions from industrial processes in Pakistan have increased at an average annual rate of 5.3%, signaling not only sustained but accelerating carbon intensity in domestic production (see figure 1). Pakistan as a net importer of carbon: Importantly, Pakistan's carbon challenge extends beyond domestic emissions. As a net carbon importer, much of the emissions embedded in its exports come from imported raw materials and machinery, particularly from high-emission economies like China (figure 2). This outsourced carbon, combined with rising local emissions, could make Pakistan's supply chains carbon intensive - a situation that should be avoided at all costs. Since CBAM taxes emissions across the production process, Pakistan's status as a net carbon importer heightens the vulnerability of its exports. In contrast, regional competitors like Vietnam, China, and India are net carbon exporters (figure 3), shifting their emissions abroad. For instance, Zhang and Chen (2022) find that over 6% of China's exports contain carbon transferred to other Belt & Road Initiative countries, most of which are net carbon importers. Pakistan's growing reliance on Chinese inputs raises the embedded emissions in its textile exports - thereby potentially eroding Pakistan's price competitiveness in major markets. Policy paralysis: Recent IMF-backed energy reforms further compound this challenge. At the center is the CPP levy, which taxes gas supplied to industrial captive power plants (CPPs) and is set to rise incrementally to 20% by August 2026, over and above grid parity. Intended to shift industrial demand to the national grid, this policy has unintended climate consequences. By making gas costlier, it pushes manufacturers toward cheaper but dirtier fuels - primarily coal - undermining Pakistan's climate targets and increasing emissions per unit of output just as global buyers tighten carbon-related standards. While this levy may force some additional units to shift to the grid, its overall impact remains marginal, as gas/RLNG consumption has already declined by 75% due to prohibitively high OGRA-notified prices. The long-term costs are steeper: elevated emissions, rising industrial energy costs, and greater exposure to carbon border taxes. With more trading partners adopting carbon accountability frameworks, Pakistan stands to lose billions in export revenues unless it aligns its industrial energy policy with global climate goals. While the IMF has recently proposed a domestic carbon levy for Pakistan, the detailed framework is yet to be developed. Potential violation of international conventions: The implications extend beyond trade and competitiveness. Increased coal use driven by distorted energy pricing risks violating Pakistan's international commitments. As a signatory to the United Nations Framework Convention on Climate Change (UNFCCC), and the Paris Agreement, Pakistan is obligated to reduce emissions by 20% by 2030 and transparently report its progress. Increased reliance on coal will spike carbon emissions, drawing international scrutiny and weakening Pakistan's credibility in climate negotiations. It also risks non-compliance with the EU's GSP+ scheme, where upcoming monitoring missions - such as the one expected in June - assess adherence to environmental commitments. More broadly, continued coal dependency clashes with the global shift toward Environmental, Social, and Governance (ESG) standards under WTO frameworks, increasing the risk of non-tariff barriers and reduced market access. It also undermines Pakistan's progress toward Sustainable Development Goals—particularly SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action) - and threatens the country's broader 2030 development agenda. CHPs for industrial decarbonization: To avoid the rising costs of carbon non-compliance and trade penalties, Pakistan must urgently reorient its industrial energy strategy. The path forward lies in smartly integrating renewable energy with gas-based Combined Heat and Power (CHP) systems. CHP offers a low-carbon, flexible solution capable of stabilizing the intermittency of renewables like solar, while leveraging existing gas infrastructure. Additionally, CHP engines can be integrated with solar PV and battery energy storage systems (BESS), creating a practical and scalable route to decarbonize industrial energy use while reducing dependence on imported coal. These systems also extract maximum economic value from gas molecules by simultaneously generating electricity and useful heat. In this context, gas and RLNG emerge as essential bridge fuels - classified as cleaner technologies - that can complement renewables and enable the transition to a low-carbon industrial base. Aligning with this strategy not only supports compliance with CBAM but also helps uphold Pakistan's international climate commitments by lowering industrial emissions. When reforms backfire: However, while the need for decarbonization is clear, current policy measures are pulling in the opposite direction. The growing disconnect between Pakistan's energy reforms and its climate obligations must be urgently addressed to preserve the country's industrial future. The objective of the IMF-backed policy - aimed at maximizing grid usage to lower tariffs by increasing consumption and spreading fixed costs over a broader base - has failed to materialize. Instead, frequent outages and rising costs have pushed consumers toward solar and industries toward alternative fuels like RFO, coal, and biomass. What persists is an unreliable and unsustainable national grid, burdened with massive stranded costs. If these issues are not urgently resolved, they could lead to a permanent loss of industrial competitiveness and severe environmental consequences. Meanwhile, the combined circular debt of the gas and power sectors has already exceeded Rs 5 trillion (as of March 2025) - a figure that will only increase if reliance on the fragile grid continues, expensive RLNG is diverted to the household sector, and domestic oil and gas fields are shut down. Too often, policies are crafted in isolation, overlooking their long-term consequences on industrial vitality and export growth. Yet, in a landscape where fiscal reforms are essential, sacrificing sustainable revenue streams like exports is a risk Pakistan can no longer afford. Therefore, an open cost-benefit analysis is urgently needed for all policies that currently overlook social, environmental, and economic costs to end this policy disconnect before the consequences become irreversible. Copyright Business Recorder, 2025
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First Post
3 days ago
- Business
- First Post
India's iron, alumina exports to UK face carbon tariff barrier despite FTA signed recently
As UK and India recently signed a Free Trade Agreement (FTA), some Indian exports to the UK still face the risk of extra taxes under the UK's Carbon Border Adjustment Mechanism (CBAM), which targets products that produce high carbon emissions. read more Prime Minister Narendra Modi and his UK counterpart Keir Starmer. Modi, who annoiunced the Free Trade Agreement on social media, said he is looking forward to welcoming Starmer to India. Reuters A Free Trade Agreement (FTA) was signed earlier this month between the UK and India, a much-anticipated deal between the two nations following Brexit. India's goods exports worth at least $775 million to the UK still face the risk of higher tariffs under the UK's Carbon Border Adjustment Mechanism (CBAM), a UK official said on Tuesday. Originally proposed by the EU and later adopted by the UK, CBAM aims to impose tariffs of up to 35 per cent on carbon-intensive goods such as iron, steel, and aluminium. STORY CONTINUES BELOW THIS AD During the talks, India requested an exemption for MSMEs from CBAM after exporters informed the Commerce Ministry that they could not meet the policy's detailed data requirements. Exporters also raised concerns that complying with the carbon tax could expose sensitive trade data. Confirming that CBAM was not part of the India–UK FTA, the UK official said that such mechanisms usually do not form part of trade deals. India has argued that CBAM violates WTO rules and proposed a 'rebalancing mechanism' under which the UK would compensate Indian industries for any losses caused by the policy. Trade experts said that under the new deal, the UK has agreed to allow 99 per cent of Indian exports to enter duty-free. However, this benefit could be undermined as some Indian products may still face extra charges of 20–35 per cent, similar to the CBAM tariff. Earlier this month, an Indian official said that India reserves the right to respond to any losses caused by CBAM. The official added that if India imposes taxes on these products domestically, it could help industries avoid paying the UK tax and use the revenue to fund India's own sustainability initiatives. STORY CONTINUES BELOW THIS AD India-UK FTA: A significant milestone The India–UK Free Trade Agreement (FTA), concluded on 6 May 2025 after over three years of negotiations, marks a significant milestone in bilateral trade relations. This comprehensive deal aims to enhance economic cooperation between the two countries by reducing tariffs, improving market access, and facilitating the movement of professionals.
Economic Times
3 days ago
- Automotive
- Economic Times
India-UK FTA revs up trade: Duty cuts on premium cars, yoga visas, & open bids on the table
India and the UK have finalized a free trade agreement. This pact lowers tariffs on British premium cars. A limited quota of vehicles will see tariffs drop to 10%. The agreement also allows 1,800 Indian professionals to work in the UK annually. UK firms can bid on Indian government tenders. The FTA is expected to boost bilateral trade significantly. Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads New Delhi: India's duty cuts on British automobile imports are largely in the premium segment and the Carbon Border Adjustment Mechanism (CBAM) is not part of the bilateral free trade agreement, a UK official the India-UK FTA, tariffs for a limited quota of vehicles will be lowered to 10% from the current more than 100%.The two sides have protected each other's sensitivities, the official said, adding that the dairy sector is sensitive for India while sugar and milled rice are sensitive for the UK."Legal scrubbing of thousand pages of the treaty will be done. It takes 2-3 months for legal checks and about a year to get it through parliament," the official the UK has offered mobility commitments to annually allow a combined 1,800 yoga instructors, classical musicians, chefs and independent professionals under the pact which was concluded early this month, the official said there is "no real effect on the UK's migration system."The FTA has a chapter on government procurement wherein eligible UK suppliers would be allowed to bid for domestic tenders. "There will be various projects where UK companies will be able to compete with Indian firms," he added. The pact is expected to increase bilateral trade by £25 billion.
Indian Express
4 days ago
- Business
- Indian Express
Exports to UK carry tariff risk as carbon tax left out of FTA
INDIA'S GOODS exports worth at least $775 million to the UK continue to face the risk of higher duties under its Carbon Border Adjustment Mechanism (CBAM) despite the conclusion of a Free Trade Agreement (FTA) earlier this month, a UK official said Tuesday. A policy that was first proposed by the European Union and later by the UK, CBAM seeks to put a tariff of up to 35 per cent on carbon intensive products such as iron, steel and aluminium. During negotiations, India had sought to secure a carve-out for MSMEs from the CBAM policy after exporters told the Ministry of Commerce and Industry they were not in a position to meet its extensive data requirements. Exporters had also raised concerns that complying with carbon tax could compromise confidential trade data of manufacturers. Confirming that CBAM was not part of the India–UK FTA, the UK official said these types of mechanisms usually don't form part of the deal. Arguing that CBAM is not WTO-compliant, India had also proposed a 'rebalancing mechanism' which would require UK to compensate Indian industries for losses incurred due to the policy. Trade experts said under the trade deal, the UK has agreed to allow 99 per cent of India's exports to enter duty-free. This concession could, however, be undermined as select Indian goods may face tariffs of 20–35 per cent, equivalent to the CBAM charges. Earlier this month, an Indian government official said India reserves the right to retaliate against losses caused by CBAM. The official said if India were to tax these products domestically, the industry could avoid paying the UK tax, and the revenue could support India's own sustainability initiatives. The carbon tax negotiations are significant, as the UK's CBAM — set to take effect in 2027 — will initially target carbon-intensive products such as iron, steel, aluminium, fertilisers, hydrogen, ceramics, glass and cement, with scope to expand the list in future. According to the think tank Global Trade Research Initiative (GTRI), the carbon tax could impact $775 million worth of Indian exports. 'By not securing a carve-out or exemption clause on CBAM, India lost a vital opportunity to protect its carbon-intensive exports. From January 2027, the UK can impose carbon taxes on Indian steel and aluminium, even as we grant UK goods duty-free access. That's a serious asymmetry. Expect the same treatment in India's FTA with the EU,' said Ajay Srivastava, founder of GTRI. As no concession was secured under the FTA, India could challenge the regulation at the WTO on the grounds that CBAM violates special and differential treatment (SDT) provisions, which advocate longer implementation periods for developing countries to protect their trade interests. However, trade law experts warn that the CBAM regulations in both UK and EU could be in effect by the time the WTO rules on the matter, given that WTO's Dispute Settlement Body (DSB) is not functional. They also said there is limited likelihood of an adverse ruling on CBAM at the WTO, as the EU remains one of the strongest supporters of the institution. A more probable outcome would be adjustments to the regulation rather than its complete withdrawal. The European Union on Tuesday refused to consult with Russia on concerns relating to carbon tax. This refusal could render Russia's dispute ineffective due to the non-functional DSB. In its request for consultation, Russia argued at the WTO that CBAM was a highly trade-restrictive and discriminatory mechanism established by the EU under the guise of climate policy. 'As the EU itself puts it, 'the introduction of a CBAM leads to a reduction in imports in the EU27', while the CBAM is used as an instrument to boost competitiveness and unlock additional investment capacity in the EU,' Russia said in its submission. Refusing the consultation, the EU stated it would 'not consult with the Russian Federation on the matter at hand as long as the Russian Federation continues to violate international law through its war of aggression against Ukraine'. Ravi Dutta Mishra is a Principal Correspondent with The Indian Express, covering policy issues related to trade, commerce, and banking. He has over five years of experience and has previously worked with Mint, CNBC-TV18, and other news outlets. ... Read More
