India's Economic Outlook: Navigating the Ripples of the EU's Carbon Border Tax
A new working paper suggests India's GDP could decline slightly from 2026 to 2030 due to the EU's Carbon Border Adjustment Mechanism. The impact could be mitigated by implementing a domestic carbon tax. The CBAM targets carbon-intensive imports and raises debates on global climate policy fairness.
- Country:
- India
India's GDP faces a potential downturn of 0.02 to 0.03 percent from 2026 to 2030, should the European Union implement its Carbon Border Adjustment Mechanism (CBAM) without any domestic carbon pricing intervention, according to a recent policy analysis.
The CBAM, designed to levy a carbon price on imports from countries with less stringent environmental laws, could lead to reduced household consumption, particularly in urban areas where carbon-intensive goods will see price hikes. However, by introducing a domestic carbon tax, India could significantly mitigate the economic repercussions of the EU's tariff.
The report by the Centre for Social and Economic Progress highlights that the EU's CBAM initially covers imports of iron, steel, aluminium, and more. This move has sparked debates at international forums, with developing nations arguing it may shift decarbonisation costs to their economies. The analysis underscores the importance of using domestic carbon revenue to support green initiatives and alleviate household impact.
(With inputs from agencies.)
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