‘Arbitrary trade measures’ such as CBAM not helpful for developing economies, says finance minister Nirmala Sitharaman #IndiaFinance

New Delhi: Unilateral and arbitrary trade measures implemented by developed economies, such as the European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM), are not helpful for India, at a time when its per capita emissions were only a third of the average per capita emissions globally, finance minister Nirmala Sitharaman said.

CBAM, which checks the carbon emissions of imports into the EU, became effective in October 2023. It levies taxes of imports in six sectors—iron and steel, aluminium, cement, fertilizers, electricity and hydrogen- which have excess emissions compared to baselines set by European companies.

Speaking at an energy transition summit organized by the Financial Times in the national capital on Wednesday, Sitharaman said India was adequately funded for its green transition, but could not be prepared for unilateral and arbitrary policies such as CBAM.

“Only the challenges which we can’t foresee and be prepared for is when you have unilateral measures, like the CBAM, which is coming, which is going to hurt our industry,” Sitharaman said.

“It is a trade barrier and you’re putting in a tariff for what you define as dirty,” the finance minister added when asked whether she thought CBAM was a trade barrier.

Impeding supply chains

Such policies are likely to impede supply chains in countries which are spending considerable amounts on transition, effectively slowing down the energy transition process itself, said Sitharaman.

India has raised its voice against CBAM in the past and will continue to do so, without damaging trade talks between India and EU, she said.

The focus shift from energy efficiency to emissions reduction for hard-to-abate sectors, along with regulation related to deforestation is causing disruptions in the system, Sitharaman said. Hard-to-abate sectors are those where greening is difficult—cement, for instance.

India is on track to achieving net zero status by 2070 in phases, she said, adding that as many as 2 million Indians had already signed up for the PM Surya Ghar Yojana, the government’s scheme to promote rooftop solar installations and generate solar energy.

Under the solar energy scheme, which aimed to get 10 million rooftop solar installation, the government wished to incentivize common individuals as well as small businesses, the finance minister said, as the scheme allows solar rooftop users to generate electricity on their own and sell it to the government.

Driving energy transition

FM Sitharaman also added the government had given incentives for manufacturers under the production-linked incentive (PLI) schemes for automobiles, auto components, as well as batteries for electric vehicles, which would be a significant driver of the energy transition.

India is also well-positioned with investments in other greener energy generation methods such as nuclear technology as well as encashing the massive resources for hydropower, Sitharaman said.

“(Nuclear reactors) are in the process. We are funding a lot of the research and we are probably at a stage where we will be breaking through sooner rather than later, and I wouldn’t be able to give a date now,” said Sitharaman.

To ramp up investments for climate change and the energy transition, the government is exploring ways where it can partner with private investors, Sitharaman said, with the aim of filling the gap between India’s current investment into transitioning and the amount that is actually required.

CBAM, which checks the carbon emissions of imports into the EU, became effective in October 2023, a little over a year ago. It levies taxes of imports in six sectors—iron and steel, aluminium, cement, fertilizers, electricity and hydrogen- which have excess emissions compared to baselines set by European companies.