US begins probe into EU’s carbon border tax: How India could benefit

The United States Trade Representative (USTR) has initiated an investigation into the European Union's (EU) expansion of its Carbon Border Adjustment Mechanism (CBAM), which may escalate trade tensions between the two parties. The USTR has solicited input from American small businesses until November 9. The US action is based on the USTR's assertion that CBAM is a carbon pricing mechanism that mandates EU importers of certain products to declare the embedded emissions of the imported goods and imposes a carbon price on those goods equivalent to the carbon price paid by EU producers.

Furthermore, the USTR noted that the EU's calculation of default values utilizes country- and sector-level production and energy data to estimate emissions intensity across countries and sectors. However, the EU imposes a punitive mark-up to the overall values to incentivize the use of company-level data. CBAM necessitates that any company-level data provided must be verified by an EU-accredited third-party verifier.

The probe is taking place as India engaged in rigorous negotiations with the EU over CBAM, and the regulation is anticipated to affect various Indian metal exports. However, any US effort to render CBAM more flexible could benefit Indian exports, as Indian trade negotiators secured a 'forward-Most Favoured Nation' Clause (MFN) CBAM under the India-EU trade agreement.