To assess these effects, the study has developed a framework for a Computable General Equilibrium (CGE) model specifically designed for India’s economic structure. This model evaluates the various impacts of CBAM.

CBAM, which began a transitional phase in October 2023 and is set for full implementation by 2026, requires EU importers to pay for the carbon emissions embedded in imported goods. The mechanism aims to reduce carbon leakage and create equal conditions for both EU and non-EU producers by pricing emissions equally.

However, the study points out that Indian industries heavily reliant on the EU market may face challenges due to CBAM. Indian exporters could face higher costs, leading to trade diversions and decreased competitiveness. The report also notes the possibility of other countries implementing similar mechanisms, which could further complicate global trade.

The CSEP study recommends that India adopt domestic carbon pricing policies to align with global practices and mitigate the risks of carbon leakage. It also emphasizes the need for revenue recycling to offset potential economic disruptions and support technological advancements in affected sectors.

The CGE model developed by CSEP, which includes detailed sectoral data and trade linkages, enables policymakers to assess CBAM’s impact on India’s GDP, employment, and welfare. The study calls for targeted interventions such as investments in low-carbon technologies and international negotiations to minimize the negative effects of CBAM.