Key Insights | Assessing the Distributional Implications of the EU’s CBAM on India: A CGE Analysis

The European Union’s Carbon Border Adjustment Mechanism (EU-CBAM) is a climate policy tool aimed at reducing carbon leakage by imposing carbon tariffs on imports from non-EU countries with lower environmental regulations. The policy is particularly imposed on the emissions-intensive-trade-exposed (EITE) sectors such as iron and steel, cement, aluminium, and fertilisers. This study uses a Computable General Equilibrium (CGE) model to evaluate the macroeconomic and fiscal effects of the CBAM on India, with a focus on Gross Domestic Product (GDP) impact, sectoral competitiveness, exports, fiscal revenue, and household welfare. Three policy scenarios are simulated to understand the possible outcomes of CBAM implementation: (i) PCARBON: a domestic carbon tax with revenue retained by India; (ii) CBAM: a carbon tax on EU exports where revenue accrues to the EU; and (iii) PCARBON + CBAM: a hybrid taxation model where carbon tax rates are halved and revenue is split between India and the EU.