Policymakers should help India align with the growing reach of carbon taxes around the world. ​Ajay Shah and Akshay Jaitley are providing information on this topic Concrete steps towards the implementation of the European Carbon Border Adjustment Mechanism (CBAM) will be taken from October 1, 2023, and there is an atmosphere of concern in India. Critics of Europe’s move see it as protectionism. More important is India’s detailed response both at the policy level and at the corporate level. In 2017, when the then US President Donald Trump pulled America out of the Paris Agreement, many countries changed their stance on efforts to reduce carbon emissions at their respective levels. Dramatic steps are being taken in Europe and governments are promoting decarbonisation. For example, annual per capita carbon dioxide emissions in Germany are expected to decline from a peak of 14.3 tonnes in 1979 to 8.1 tonnes in 2021. At its peak in 1897, Germany contributed 17 per cent of the world’s total emissions, while in 2021 it will be only 1.82 per cent. Carbon reduction in the EU has helped to improve globally. For example, it helped increase social stability in coastal India. All this happened at the cost of European industries. EU voters are aware that they are paying a high price for the good, that is, for reducing emissions. If carbon-based production were simply excluded from the EU, the global public good of decarbonisation would be unrealized and jobs would be lost in Europe. This concept gave rise to the idea of ​​a carbon border tax. That is, imports into the EU should be subject to a border tax that reflects the market price of carbon in the EU. By doing this, the decision of a company to be established in the European Union or outside can be made absolute. It is as if GST is completely neutral in case of international production. The entire burden of domestic GST is refunded to Indian exporters and GST on imports is borne by the recipient company. GST on imports is not protectionist. In the European Union, the CBAM regime will come into effect from January 1, 2026, for select industries. The two industries that matter most to Indian exporters right now are steel and aluminium. The first step towards CBM is that from October 1, 2023, companies bringing steel and aluminum into the EU will be required to measure their carbon intensity and submit a statement. There is a feeling of some people in the country to backtrack or say they want the return of CBAM to the European Union using India’s diplomatic influence. This is a weak strategy. The European Union is the first union to introduce a carbon tax. Many other countries will follow him. Every country with a carbon tax would have a CBAM-like tax to make companies’ location decisions neutral. Policy makers need to understand this and prepare the Indian economy accordingly. A major asset for India is its strong position in renewable energy. Annex 3 of the EU CBAM documentation describes the information systems required for emissions monitoring during production. There is a natural fit in this area with the GST regime where Indian exporters are refunded all embedded taxes in case of taxes incurred during production. In India we also have to develop such information system. India’s policymakers and companies are aware of these moves from the proposal stage in 2021 itself. We have several proposals under process. For example, the Ministry of Steel steers the Green Steel initiative. The power policy enhanced the flexibility for buyers to set up specific renewable power purchase mechanisms for buyers. Indian companies in many industries have turned to renewable energy. These steps have also helped in creating the foundation of the present situation. After carbon taxation and ESG investments, many Indian companies are looking to renewable energy. It is electricity policy’s job to create autonomy: where a willing buyer can find renewable energy at will. The Interstate Transmission System (ISTS) of the Central Government is helpful in this. It removes the hassles of private buyers and renewable energy producers. ISTS is not physically present everywhere but is expanding continuously. It was clear from the beginning that electricity is a state subject and local conditions vary greatly across the country. Subsidy to farmers is an issue in Haryana but not in Delhi. The presence of private distribution companies, which improve conditions for power reforms, is uneven. There is also a difference in technical possibilities. There is potential for hydropower in the Himalayas, solar power in Rajasthan, pumped water storage in the Western Ghats, and wind power in Gujarat and Tamil Nadu. Carbon taxation around the world is an important factor that is based on local factors. Exports are very important to Gujarat, Maharashtra, Karnataka and Tamil Nadu. These states require a more significant response than elsewhere when it comes to the emerging world of carbon border taxes. These states will have to become leaders in the country by strengthening their power sector. Along with this, they will also have to give proper support to the renewable energy sector for their export sector. Two routes can lead us to the necessary decarbonisation of the country: one based on central planning where officials design the electricity system and lay down technical regulations and the other through carbon taxation. A carbon tax attracts private interests and is the least cost route to decarbonisation in India. This is a good opportunity for India to bring much needed reforms in the power sector through carbon tax. (Shah is a Researcher at XKDR Forum and Advisor to Jaitley on Policy Affairs) !function(f,b,e,v,n,t,s) {if(f.fbq)return;n=f.fbq=function(){n.callMethod? n.callMethod.apply(n,arguments):n.queue.push(arguments)}; if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′; n.queue=();t=b.createElement(e);t.async=!0; t.src=v;s=b.getElementsByTagName(e)(0); s.parentNode.insertBefore(t,s)}(window, document,’script’, ‘ fbq(‘init’, ‘550264998751686’); fbq(‘track’, ‘PageView’);