Climate tax in offing

India opposes EU carbon equalization scheme; to fight it at WTO

The European Union (eu) is mulling a “controversial” greenhouse gas reduction plan, through which it will impose a carbon tax on goods imported from countries with no emission curbs under the Kyoto regime. The tariff, seen as a threat to international trade, is part of eu’s “carbon equalization system”. India has opposed the move to impose such a tax. Ujal Singh Bhatia, India’s ambassador to the World Trade Organization (wto), has warned the eu of retaliation and litigation from its trade partners if the eu goes ahead with any trade restrictive measures.

The eu tariff will come into place unless an international agreement subjecting all countries to similar climate change mitigations measures is arrived at. Developing countries that are not required to follow mandatory emission cuts under Kyoto Protocol are worried that the tariff will affect their business.

Officials of the Union Ministry of Commerce and Industry said it will be a major issue at the wto deliberations just after the Doha round of trade talks in May. “Such taxes if imposed will be a technical barrier. They need to be studied well,” an official said. He added that industry representatives and experts will also be consulted on the issue. Other sources said that if such a tax is imposed, it should be tied up to transfer of greenhouse gas reducing technologies from developed countries.

Grab opportunity

The European Commission released a report titled “Europe’s Climate Change Opportunity” on January 23. The report stressed that European countries were at a disadvantage compared to countries such as the us, India and China, with less stringent climate protection laws. According to the report, energy-intensive industries in Europe would face a challenge during their transition to a climate-friendly economy. Besides rising costs of electricity, European companies will need to buy carbon credits, which the report terms “additional cost”. eu officials say this would make production of materials in eu more costly than those made in India for example, and hence not competitive. “It also carries the risk that production and pollution both shift to countries with no low-carbon policies,” the report said.

“In the absence of such (a comprehensive international) agreement, the eu must take action to ensure a level-playing field,” it added, while proposing a “carbon equalization system to put eu and non- eu producers on a comparable footing”. The report says a level-playing field would mean that countries doing business with Europe may have to obtain emission permits.

Sources say the plan is a result of pressure from industries and trade unions. When the commission was debating the policy, its directorate of industry asked for tax compensation, without which, it said, about 50 sectors of its economy would be vulnerable to imports. Two months later, at the spring summit of eu heads of state at Brussels in March, officials said if the rest of the world didn’t match Europe’s carbon tax and control regimes, eu would take “appropriate measures”. The measures have not been defined yet. The German news agency, dpa, quoted French President Nicolas Sarkozy as saying that Europe should impose a carbon tariff on goods imported into Europe. Sources at wto indicated that there were disagreements within the eu on carbon import taxes and the proposal was under the scanner. Media reports hinted that the law is expected by March 2009.

Gearing up

The Indian industry is trying to find methods to prove that the proposal does not conform to wto regulations. "Principally, we do not agree with the proposal. It seems a new tariff barrier is being set up and we are preparing our inputs for the government to fight it out at the wto," said Seema Arora, head of the Centre of Excellence for Sustainable Development, Confederation of Indian Industry (cii). cii is in the process of preparing a report on what the Indian industry has done voluntarily to tackle climate change. "The eu does not need to tax us to tackle climate change. We are responsible enough. Though we do not have mandatory emission cuts, we are taking a lot of steps voluntarily," Arora added.

However, carbon tax being an issue pertaining to trade and of environment, Arora stressed on proper co-ordination between the commerce and the environment ministries. But Miss Gurpyari, additional economic advisor to the Union Ministry of Environment and Forests, said, "We have not heard of the proposal."

The us government too is not in favour of such tariff. According to media reports, the us will stoutly resist calls for any form of trade protectionism as a response to climate change. However, the country had tried to introduce carbon taxes earlier. A proposal to this effect was drafted as part of America's Climate Security Act, 2007. Under the act, importers of certain greenhouse gas-intensive goods would be required to follow the same emission limits as American companies. The bill is being discussed at present.

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