Global outcry over EU’s carbon tax and deforestation regulations

Several countries, including India, Russia, and Brazil, expressed opposition to the European Union’s (EU) proposed carbon tax and deforestation regulations at a recent World Trade Organisation (WTO) meeting in Geneva. They fear that these measures could negatively impact their industrial sectors, according to a WTO official.
These objections were voiced during the two-day WTO’s Council for Trade in Goods meeting that ended on July 7th.
Developing nations criticised the EU’s deforestation regulation, noting that their agriculture sector – a significant source of employment and economic wellbeing – could be unfairly penalised. They pointed out that the EU’s policy decisions could detrimentally affect these socio-economic groups.
The EU’s regulations are due to take effect on December 29, 2024, with an additional six months of leniency for smaller businesses.
Several WTO members expressed concern over the EU’s recent deforestation-free product regulation, which was introduced on June 29. Companies will have 18 months to adapt to these new rules. Additionally, concerns were raised over the EU’s Carbon Border Adjustment Mechanism (CBAM), with members such as China, Russia, Brazil, and India voicing their objections.
The CBAM was criticised as a unilateral measure that diverges from the principles of shared but differentiated responsibilities and doesn’t align with the WTO’s non-discrimination principles. Several members lamented that the EU did not allow sufficient time for comments before the mechanism’s introduction in October.
In response, the EU maintained its transparency throughout the CBAM design stage and pledged to continue discussions during the transition period up until its full implementation by the end of 2025.
The GTRI think tank report predicts that CBAM will result in a 20-35% tax on certain imports into the EU starting January 1, 2026. From October, companies from seven carbon-intensive sectors will need to seek compliance certificates from the EU to align with CBAM standards.
This could have significant implications for India’s iron, steel, and aluminium exports to the EU, which may face increased scrutiny under the new regulation. In 2022, these exports to the EU accounted for 27% of India’s total, worth USD 8.2 billion.
The GTRI also anticipates that EU’s deforestation regulation will impact India’s exports of products such as coffee, leather hides, and paperboard, valued at USD 1.3 billion annually. The new rules will apply to large firms after 18 months and small firms after 24 months.
The Council for Trade in Goods is scheduled for its next formal meeting on November 30 to December 1, 2023.