European Union border tax tests India’s small iron and steel businesses
CBAM has been criticised for going against this principle as it shifts this burden onto developing countries that have contributed little to the crisis, according to a 2024 report by New Delhi-based think tank, Centre for Science and Environment. Inside a foundry in Kolhapur, Maharashtra, work never stops. Workers come in shifts, put on yellow helmets and safety goggles, and toil for at least eight hours indoors where temperatures reach up to 50°C. With precision, they toss blocks of pig iron — derived from iron ore — and scrap (recycled steel) into a furnace operating at around 1,600°C. Once the metal melts, it is quickly poured into a mould, taking the shape of a pump, an automobile part, or another industrial component. Once cooled and solidified, these castings are shipped to customers in India and overseas. This is a regular day at Caspro Metal Industries Private Limited, a company that manufactures 30,000 tonnes of metal castings annually from its base in Kolhapur. Of this, 15-20% is shipped to the European Union (EU). The company has enjoyed a two-decade-long trading partnership with the EU, but that relationship now appears to be on shaky ground. In 2024, its importers in Germany flagged a new EU climate regulation. “This is going to be a huge add-on cost for us,” said Vijay Patil, Manager at Caspro, at his office in Kolhapur. The regulation in question is the Carbon Border Adjustment Mechanism (CBAM). First proposed by the EU in 2021, CBAM imposes a tax on the greenhouse gas content of imported goods, covering sectors including iron and steel, cement, aluminium, and fertilisers. In October 2023, it entered a transition phase requiring exporters to submit emissions data. In January 2026, its definitive phase began, effectively taxing carbon-intensive goods entering the EU. Though EU importers pay the tax, many Indian exporters may have to cut prices by 15-22% to stay competitive, according to Global Trade Research Initiative (GTRI), a research services institute. EU-based companies already pay domestic carbon prices. By taxing carbon-intensive imports, CBAM reportedly aims to ensure the competitiveness of domestic industries and create a level playing field. Developing countries like India, on the other hand, have argued that CBAM is a unilateral trade barrier that clashes with the principles of Common But Differentiated Responsibilities and Respective Capabilities (CBDR & RC), enshrined in the United Nations Framework Convention on Climate Change (UNFCCC) which acknowledges that industrialised countries bear greater historical responsibility for climate change due to their earlier industrialisation. CBAM has been criticised for going against this principle as it shifts this burden onto developing countries that have contributed little to the crisis, according to a 2024 report by New Delhi-based think tank, Centre for Science and Environment.
