The iron and steel (I&S) sector provides key inputs for vehicles, construction, and machinery materials. Global steel production is increasing, with the world’s share of steel exports falling to 22%. Since this sector also accounts for about 8% of the total emissions, numerous major steel-producing countries have implemented policy initiatives to decarbonize the steel sector.
As a net steel importer, the European Union (EU) has taken measures to limit domestic carbon emissions through stringent commitments. Since international trade of goods contributes to about 27% of global CO2 emissions, the EU intends to control embedded emissions from imported goods. This is proposed through the Carbon Border Adjustment Mechanism (CBAM) as part of the European Green Deal, a component of the ‘Fit for 55’ package. However, this mechanism could negatively affect the growth and trade prospects of developing economies like India, a net steel exporter with a diversified supply chain. This impact depends on the extent of substitution possible by the EU and other countries for Indian steel exports.
The present study is undertaken by applying the ICRIER Samriddhi Model (GTAP-E based), which evaluates the impact of the imposition of CBAM on India’s steel exports, thus indicating a pathway India should adopt if the EU imposes a carbon border tax. The study results indicate that CBAM is likely to significantly impact India’s steel exports to the EU, causing a fall in India’s steel exports to the EU by 24%. The paper also gauges whether the imposition of CBAM would lead to a significant reduction in carbon emissions and finds that a reduction of 1% in aggregate emissions will occur in the global steel industry.
