This first-of-its-kind qualitative research on India explores how CBAM may induce uneven decarbonisation in Indian Steel Industry
LUCKNOW: A co-authored research by a faculty ofIndian Institute of Management Lucknowhasshed light on the significant impact of the European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) on India’s steel industry.Implemented since October 2023, CBAM aims to apply carbon content-based chargeson imports of certain emission-intensive products (e.g. steel) from countries with less stringent emissions regulations, such as India. While the EU argues that CBAM will prevent carbon leakage and encourage decarbonisation, this study critically examines its real-world implications, particularly in terms of equity and feasibility.
Co-authored by Dr. Kaushik Ranjan Bandyopadhyay, Professor and Chairperson, Centre for Business Sustainability, IIM Lucknow, and Dr. Kasturi Das, Professor, Institute of Management Technology, Ghaziabad, Delhi-NCR, and Fulbright-Kalam Climate Visiting Fellow, Yale University, USA, the findings of this research have been published in the prestigious journal International Environmental Agreements: Politics, Law and Economics (Springer Nature).
The research provides valuable insights for policymakers and industry stakeholders as they navigate the challenges and opportunities presented by this landmark EU policy instrument.
In this first-of-its-kind study in India, the researcherstested the hypothesis whether the EU’s ability to extend its regulation beyond borders, commonly known as “Brussels Effect”, will drive decarbonisation in India’s steel industry through CBAM. The research team found that while large integrated Steel Plants (ISPs) may adapt their production to supply lower-carbon steel for the EU market, Smaller and Medium-sized Enterprises (SMEs) could face challenges due to financial, technological, and capacity constraints.
This could create a dual-speed decarbonisation process, favouring the larger players and leaving the smaller firms vulnerable. The lack of adequate support for SMEs to tackle their emissions reduction could lead to unequal outcomes within the industry.
Additionally, the study highlights that implementation of unilateral CBAM-like mechanisms across jurisdictionscan increasecosts for exporters,complicate trade relations and potentially weakenscollaborative global climate efforts.
Speaking about the policy implications, Prof. Kaushik Ranjan Bandyopadhyay, said, “Although policy frameworks are in place in India to facilitate the decarbonisation process in the steel industry, the sector is ridden with complexities. Hence it would be naive to expect that CBAM can hasten the process overnight.”
The study presents a set of actionable recommendations for policymakers in the EU and other countries contemplating similar measures (e.g. UK) to ensure that CBAM fosters an ecosystem for a fair and effective decarbonisation pathway. These recommendations are particularly crucial for India-EU negotiations on CBAM as part of the ongoing Free Trade Agreement (FTA) discussions.
Notably, the European Commission is set to unveil an Omnibus Proposal by the end of February 2024, which may simplify CBAM’s processes and reporting requirements.
The research employed a qualitative methodology based on primary data collected from 41 key stakeholders, including representatives from steel companies, industry associations, government bodies, academia, and civil society. The study highlights that India, as the world’s second-largest steel producer, plays a major role in achieving global climate goals, making it essential for CBAM policies to align with principles of equity and fairness.
Additionally, the authors havehighlightedthat trade, and geopolitical tensions could be exacerbated by unilateral approaches like CBAM.In a fragmented global order, fostering collaborative decarbonisation strategies is essential for meaningful climate action.
In this context Prof. Das, the co-author of this research added, “If the EU is keen to advance the decarbonisation efforts in its trading partners from the Global South like India, it is essential to complement regulatory measures like CBAM with supportive initiatives, such as technology transfer and capacity-building assistance.”
The research has been published as part of a Green Deal-NET Special Issue on the external dimensions of the EU Green Deal. Dr. Kasturi Das acknowledges the support from the Fulbright-Kalam program and Yale University for facilitating this study.
