How vulnerable is India’s trade to possible border carbon adjustments in the EU?
This document is an empirical analysis of India’s trade vulnerabilities to a possible border carbon adjustment scheme implemented by the European Union (EU). Many EU countries consider such a scheme as a necessary measure to mitigate potential trade disadvantages (due to restrictive carbon reduction obligations) and to ensure that high carbon intensity production is not simply outsourced to developing countries. The report assesses which sectors and items across India’s exports to the EU are most likely to be affected by a border carbon adjustment scheme, concluding that there is a high probability that the scheme would have a considerable impact on a large share of India’s exports to the EU.
The paper includes the following suggestions for how India could prepare for any future carbon adjustment schemes.
- For undertaking targeted policy measures, identification of high-risk items should be conducted at a greater disaggregated level in order to accurately locate the most vulnerable items.
- Availability of data on energy use and carbon emissions needs to be improved, particularly in energy-intensive sectors.
- Efforts to reduce carbon emissions in energy-intensive sectors must continue apace, as well as integrate small and medium enterprises into mitigation strategies for any future border measures.
- Export destinations should be diversified to mitigate India’s high exposure to EU markets concerning items likely to come under the purview of border measures.
- India should cooperate with other developing and BASIC countries (Brazil, South Africa and China) to ensure the inclusion of provisions in any final agreement that obligate developed countries not to implement unilateral trade measures.
First published in Journal of World Trade, vol. 46, number 2.