How Vulnerable Is India’s Trade to Possible Border Carbon Adjustments in the EU?

Abstract

This paper presents an empirical exercise with the aim of adressing the following research questions: (a) how vulnerable is India's trade to any future border carbon adjustments in the European Union (EU) and (b) which sectors/items are most likely to be affected? The exercise is based on the EU List released in December 2009, in which the bloc has identified 164 (sub)sectors as deemed to be exposed to a significant risk of carbon leakage. In light of the finding that the Harmonized System's (HS) six-digit items corresponding to the (full) EU List comprise the lion's share of India's exports to the EU, it is argued in this paper that there is a very high probability of any such border measure having a considerable impact on India's exports to the bloc. The study further reveals that even if the EU decides to leave the 117 highly trade-intensive but low carbon-intensive sectors (included in the EU List) outside the ambit of any future border carbon adjustments, the overall vulnerability of India could still be quite high. Among the four BASIC countries (namely, Brazil, China, India and South Africa), India appears to be the second-most vulnerable, after South Africa.