If they do put it in, we will retaliate: Piyush Goyal on India’s potential retaliation on EU’s carbon tax imposition

On Tuesday, Union Commerce and Industry Minister Piyush Goyal firmly asserted that India will impose retaliatory tariffs if the European Union proceeds with its plan to implement a carbon tax on Indian products. He highlighted the diminishing importance of climate change discussions and categorised the EU’s Carbon Border Adjustment Mechanism (CBAM) as “extremely irrational regulations.”

Image for representational purposes only

“If they will put in a carbon tax, and now there is a big if for obvious reasons. If they do put it in, we will retaliate. They will put it on products which really will hurt their own economy, and the retaliation will further hurt their economy,” Goyal conveyed during an event in New Delhi.

“I think it will be very silly, particularly to put a tax on friendly countries. I am in continuous dialogue with them and I am hoping wiser sense will prevail in the EU countries,” he shared.

Advocacy for CBDR

In international negotiations, India consistently emphasises the principles of equity and “common but differentiated responsibilities” (CBDR). For instance, at COP29 in November 2024, India’s delegation asserted that climate decisions must prioritise equity, climate justice, and CBDR.

India has highlighted that affluent nations have already consumed a significant portion of the world’s “carbon space” through their historical emissions, leaving limited capacity for developing economies. As a result, India contends that developed countries should take the lead in making substantial emissions cuts and provide financial support and technology to the Global South.

Goyal remarked that developed countries should share their technologies and financial resources with developing and least developed nations to address the challenges posed by climate change.

Impact of CBAM on Indian trade

India’s exports exposed to CBAM are concentrated in a few hard‑goods sectors. In 2023, steel and aluminium were the largest such exports to the EU (cement exports were comparatively modest). For example, India shipped about 2.0-2.5 million tonnes of steel to the EU in 2023 (roughly 40–50 per cent of India’s total steel exports). It also exported about 0.7 million tonnes of primary aluminium to Europe in FY2023 (24 per cent of India’s aluminium exports).

In economic terms, CBAM will raise costs for Indian exporters. A 20–35 per cent carbon levy on steel could translate into roughly USD100–200 extra per tonne (depending on the carbon intensity), directly eroding profit margins.

Credit ratings analysis (ICRA) has found that CBAM compliance could cut Indian steel export profits by about USD 60-165 per tonne in 2026-34. Aluminium exports are comparitively less affected at first (only the relatively small 2-6 per cent direct-emissions tax), but inclusion of indirect coal power emissions later could suddenly impose a 27-30 per cent surcharge.

India’s trade defence history

India has a long history of protective and retaliatory trade measures. For instance, after the US imposed high tariffs on steel and aluminium in 2018, India initially planned retaliatory duties of up to 120 per cent on many US goods. In June 2019, India enacted higher tariffs on 28 US products in response to the US withdrawing India’s GSP privileges. These duties matched US measures in dollar terms – roughly USD 200-290 million burden on US exporters.

Similarly, when the EU challenged India’s 2017‑18 increase of mobile-phone import duties, India defended them by arguing the products were not covered by the 1996 IT Agreement. Ultimately, a WTO dispute panel (April 2023) ruled that India’s 2019 phone/ICT tariffs (7.5–20 per cent) did violate its WTO commitments, although India had already rescinded some rates.

India has also repeatedly used anti-dumping and safeguard duties on imports (from solar cells to textiles) to protect the domestic industry. It maintains high tariffs on products such as electronic goods, automobiles, dairy, etc. and has levied safeguards on steel, sugar and other sectors. In turn, other countries have sometimes challenged India’s policies at the WTO (e.g. on agricultural subsidies, export incentives, or telecom duties).

Summing up, India’s track record shows the commerce minister is not bluffing and the nation is willing to impose retaliatory tariffs or duties when its industries are threatened, especially if a trading partner is seen as unfairly targeting India.