The much-debated Carbon Border Adjustment Mechanism (CBAM) of the European Commission, which proposes to penalise heavy emissions during manufacturing of products being traded in the European Union, entered its transitional phase in October last year. While this takes the EU closer to its ambition of net-zero emissions by 2050, for countries that export to the region, it highlights the urgency of a reality check on how well-prepared they are to meet the stringent regulatory demands.
The CBAM currently covers the most carbon-intensive sectors like iron and steel, aluminium, cement, fertiliser and electricity. However, it is expected to soon encompass others as well. And, polymers, including textiles, are next. According to a 2022 paper by the International Labour Organization, the textile and garment sector accounts for an estimated 6% to 8% of the global carbon emissions, which puts it in the high-risk category for climate action.
India is the third-largest exporter of textiles and apparels, with EU being among its top importers. As per the data from the Ministry of Textiles, the 27-member bloc was the second-largest destination of India’s textile and apparel exports after the US in 2022–23. Worth $7,670 million, the exports accounted for 21% of India’s total textile exports.
CBAM mandates that partner countries follow environmentally sustainable practices to manufacture products being exported to the EU. Failing this, they will be required to pay a carbon tax. As a country that has already been struggling to meet the environmental, social and governance (ESG) compliance requirements, is India prepared for the burden of CBAM?
The Cost Concerns
This story is from the February 2024 edition of Outlook Business.
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This story is from the February 2024 edition of Outlook Business.
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