The carbon clock is ticking for industries such as steel, cement, fertilisers, and aluminium. Starting from October 1, companies operating in these sectors will be required to share data on their carbon emissions with the European Union (EU). This marks the initial phase of Europe’s move towards implementing a carbon tax system, which is scheduled to take effect from January 2026.
The government has called upon steel companies and other entities involved in exports to disclose their readiness to reduce carbon footprints and provide information about their efforts to address environmental challenges in global markets. Government officials are set to collaborate with the industry to create a blueprint outlining necessary production changes to align carbon dioxide emission intensity with European standards.
The Indian Steel Ministry is actively engaging with its commerce counterparts to establish a method for calculating embedded carbon and is formulating a plan for green steel production. This plan entails introducing technological and procedural alterations within the steel sector. Similar measures will be taken for other industries affected by the impending carbon tax.
Transitioning to environmentally sustainable practices in industries like steel, which have historically posed significant challenges in reducing emissions, requires government support. T.V. Narendran, the global CEO and managing director of Tata Steel, emphasized the complexity of transitioning from coal and gas to hydrogen in a supply chain that has spanned over a century. He stressed that the journey toward sustainability is a substantial one and necessitates government assistance, as well as customer willingness to pay more for eco-friendly products.
Notably, penalties for non-reporting, negligent reporting, or misreporting of data related to the carbon tax will be imposed starting from October 1, 2023, even though the Carbon Border Adjustment Mechanism (CBAM) tax itself will not be enforced until January 1, 2026. The CBAM tax is anticipated to result in a 20-35 per cent tax on specific imports into the EU, affecting Indian ore pellets, iron, steel, and aluminium products.
Approximately 27 per cent of India’s iron ore pellets, iron, steel, and aluminium exports are destined for the EU, with a total export value of $7.4 billion recorded in 2022-23.
Additionally, discussions are ongoing between the EU and India regarding the establishment of a dedicated dispute settlement mechanism under the bilateral investment protection agreement, part of the larger negotiations involving a comprehensive free trade agreement (FTA) between the two parties.
