Wednesday, 23 August 2023
The European Union’s impending carbon tax is set to have significant implications for exporters, particularly in sectors such as metals. A recent report by the Global Trade Research Initiative (GTRI) has highlighted the urgency for both governments and exporters to devise strategies, including the establishment of robust emissions monitoring systems and incentives for green technology adoption.
The GTRI’s comprehensive action plan reveals that Indian companies have a tight window of fewer than 40 days to gear up for the CBAM (carbon border adjustment mechanism) transition. While the CBAM tax will be officially levied from January 1, 2026, starting October 1 this year, domestic firms from key sectors, encompassing steel, cement, fertilisers, aluminium, and hydrocarbon products, will be mandated to share their carbon emissions data with the EU.
Ajay Srivastava, co-founder of GTRI, emphasised the penalties associated with non-compliance, stating, “While the CBAM tax will be in full swing by January 2026, penalties for non-reporting or inaccurate reporting will commence from October 1, 2023.”
The transition period, beginning this October, introduces comprehensive data compliance mandates for Indian exporters. This comes in the wake of the EU’s recent announcement on August 17, detailing the compliance prerequisites for the CBAM transition.
Srivastava pointed out the intricate nature of the CBAM documentation, which spans over 800 pages of complex legal and technical content, necessitating a deep understanding by both the government and industry stakeholders. He further cautioned that smaller firms might bear the brunt of penalties more than the tax itself, given the current state of domestic data capture.
The GTRI’s nine-step action plan encompasses:
- Raising awareness and education
- Streamlining data collection and management
- Formulating a compliance strategy
- Ensuring accurate reporting and submission
- Risk mitigation
- Long-term strategic planning
- Continuous monitoring and review
- Bolstering industry-academia collaboration
The report also advocates for the creation of a dedicated task force, inclusive of representatives from pivotal ministries such as commerce and environment. This group would be responsible for overseeing CBAM compliance and fostering communication between industries and governmental entities.
Furthermore, the report underscores the importance of investing in robust data collection systems, fostering collaborations with tech providers to develop software tools for efficient data management, and establishing dedicated teams for data preparation in line with CBAM specifications.
Given the quarterly reporting framework, industries are advised to instate internal protocols for meticulous data review and verification, ensuring accuracy and avoiding potential penalties.
For a sustainable future, the report encourages industries to channel investments into research and innovation, focusing on emissions reduction and energy efficiency. It also urges the government to extend incentives or grants to companies championing green technologies.
In a bid to fortify industry-academia collaboration, academic institutions are encouraged to curate specialised courses centred on carbon emissions reporting and management.
By diligently adhering to this action plan, both the government and industries can adeptly navigate the challenges presented by the CBAM, ensuring seamless compliance and minimising risks, all while steering towards a greener future.
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