THE world's first carbon import tax came into force this week with the introduction of the EU's Carbon Border Adjustment Mechanism (CBAM), reports Fort Lauderdale's Maritime Executive.

In response, India for example, is planning a countervailing carbon tax that would only apply to exports going to the EU.

The goal is for India to collect the tax proceeds itself instead of sharing it with the EU, reported the Hindu Businessline newspaper.

Until 2026, it will be in a transitional phase allowing stakeholders to collect useful information to refine the methodology for the levy's definitive period, which would follow.

The EU's CBAM is a central pillar of the bloc's Fit for 55 policy. It uses the amount of CO2 emitted during production of carbon-intensive products - steel, fertiliser and aluminum - to calculate the tax.

According to EU's Commissioner for Economy, CBAM seeks to force industry worldwide to embrace greener technologies and prevent the relocation of production outside EU borders to escape the tax.

One likely result when CBAM is fully implemented is that high-carbon producers outside the EU will become less competitive in Europe. Further, EU's multinationals - which are highly reliant on offshoring - may have to rethink their operations.

But CBAM's sting will be felt most by the EU consumers as the producers are likely to pass on the cost.

For example, Spain imported 14.5 billion tons of steel in 2022, half of which came from outside the EU. Assuming an average carbon intensity of steel and the current EU carbon price, Spanish steel importers could face annual tariffs of some US$1 billion when CBAM is fully enforced in 2034, according to a computation by the BCG.

The perceived impact of CBAM to other countries is also critical. A countervailing tax on imports coming into India from the EU is also on the table, with Indian government officials examining legality of such a measure with WTO (World Trade Organisation) rules.