India plans to challenge EU carbon tax at WTO: Report

India is likely to challenge the European Union's (EU) proposed carbon tax at the World Trade Organization (WTO), citing concerns over the potential impact on its economy, a Reuters report has said.

The move comes as the EU intends to implement 25 percent to 30 percent tariff on imports of high carbon goods such as steel, cement, aluminum, iron ore etc. The proposed carbon tax has raised concerns about its potential adverse impact on developing nations, particularly those that heavily rely on carbon-intensive industries.

The EU's carbon import tax, which is part of its broader climate change agenda, aims to encourage member-countries to reduce their carbon emissions and adopt greener practices.

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Under the proposed tax, goods imported into the EU will be subject to a carbon border adjustment mechanism (CBAM), where a fee is imposed based on the carbon footprint associated with their production. The intention is to level the playing field for EU industries that already adhere to stringent emission regulations.

However, many developing countries, including India, worry that the proposed carbon tax could disproportionately affect their exports to the EU.

“In the name of environment protection, EU is introducing a trade barrier that would hit not only Indian exports but also of many other developing countries,” Reuters quoted a top government official with direct knowledge of the matter as saying.

India is likely to question the legality of the proposed tax, while arguing that it is already following the protocols pledged in the Paris climate agreement, reported Reuters.

India has also argued that the EU's proposed carbon tax lacks fairness and transparency and could hinder global trade. According to reports, the proposed tax could lead to declining export revenues, job losses, and economic instability in developing countries, including India.

The Federation of Indian Export Organisations has warned that the tax proposal could make India’s free trade agreements with other countries and a proposed pact with the EU “redundant” as the prices of many exported goods would rise by nearly one-fifth after the carbon tax.

(With agency inputs)