The CBAM 2028 Expansion – Why 180 New Products Will Reshape India's Export Landscape

Introduction: The Second Wave Is Coming

The European Union's Carbon Border Adjustment Mechanism (CBAM) is not a static policy. It is expanding. And the next wave will hit Indian exporters harder than the first.

The EU has strengthened CBAM, expanding its reach to more products and introducing strict anti-circumvention measures. While the initial mechanism focused on raw materials, the new rules will now cover over 180 additional processed goods.

This expansion represents a fundamental shift in global trade dynamics. Carbon is no longer just a cost for raw material producers—it is becoming a cost for manufacturers of finished and semi-finished goods across the supply chain.

The Council of the European Union on Friday moved to strengthen the Carbon Border Adjustment Mechanism, expanding its reach to more products and introducing strict anti-circumvention measures. The finance ministers of the EU countries agreed on a "general approach" to update the CBAM regulation, which has been in operation from January 1, 2026.

For Indian exporters, this means:

• More products will face carbon border taxes
• More sectors will be affected
• More compliance will be required
• More urgency to decarbonise

This guide examines the CBAM expansion, what it means for Indian exporters, and how to prepare for a future where carbon costs are embedded in every stage of the supply chain.

---

What Is CBAM and How Does It Work?

What Is CBAM?

The Carbon Border Adjustment Mechanism is the European Union's landmark carbon tariff on imported carbon-intensive goods, such as iron, steel, cement, fertilizers, aluminium, electricity, and hydrogen.

It encourages cleaner industrial production in non-EU countries, ensuring imported products face the same carbon costs as goods produced within the EU, preventing "carbon leakage".

The CBAM Transition

Phase	Period	Requirement
Transitional	October 2023 – December 2025	Reporting only, no payment
Definitive	January 1, 2026	Payment phase begins

How CBAM Works

Step	Description
1. Declaration	Importers must declare the embedded emissions of their imports
2. Certificate Purchase	Importers purchase CBAM certificates to cover these emissions
3. Deduction	If a carbon price has already been paid in the country of origin, it can be deducted
4. Compliance	Importers must submit annual reports and compliance declarations

The CBAM Certificate Price

The first quarterly price for CBAM certificates was set at EUR 75.36 per tonne of CO₂ equivalent for Q1 2026.

Sectors Covered (Current)

CBAM currently covers six sectors: iron and steel, aluminium, cement, fertilisers, hydrogen, and electricity.

---

The Current Impact: 24.4% Export Decline

The Data

India's steel and aluminium exports to the European Union (EU) fell 24.4 percent in Financial Year (FY) 2025, with steel alone down 35.1 percent, before any Carbon Border Adjustment Mechanism (CBAM) financial obligation had taken effect.

What These Numbers Mean

• The decline occurred before any CBAM financial obligation had taken effect
• European buyers are already reorienting toward lower-emission producers
• The financial impact of CBAM has not even begun to bite
• The decline will intensify as CBAM costs are fully applied

The Pre-emptive Shift

European buyers are not waiting for CBAM costs to be fully applied. They are already shifting their supply chains toward lower-emission producers. This is a structural shift, not a temporary adjustment.

The Export Price Cut

Indian steel and aluminium exporters to the EU market have been forced to cut prices by 15-22 per cent to absorb the tax burden since January 1, 2026, when CBAM entered its payment phase, according to Global Trade Research Initiative (GTRI).

The IEEFA's Warning

The IEEFA report notes that India's steel and aluminium exports to the EU fell 24.4% in FY25, with steel alone down 35.1%, before any financial obligation under CBAM had taken effect. The decline suggests European buyers are already reorienting toward lower-emission producers, underscoring what is at stake as India's CCTS enters its operational phase.

---

The 2028 Expansion: 180 Additional Products

The Proposed Expansion

The EU has announced plans to expand CBAM coverage to additional products. The new rules will now cover over 180 additional processed goods.

Key Changes

Change	Impact
Expansion to processed goods	More Indian products affected
Timeline	2028 onwards
Anti-Circumvention Measures	Stricter rules to prevent bypassing the tax

The ENVI Committee Proposal

In a report issued on April 10, 2026, the European Parliament's Committee on the Environment, Climate and Food Safety (ENVI) recommended bringing more products under the scope of CBAM and proposed to include around 180 additional steel- and aluminium-based products from January 1, 2028.

What This Means for Exporters

Implication	Description
More Products Covered	Finished and semi-finished goods will be affected
More Sectors Affected	Beyond raw materials to manufacturing
More Compliance Required	More products require emissions data
More Urgency	Preparation must start now

The Downstream Effect

The expansion to processed goods means that even exporters who do not produce raw materials will be affected. If you use steel, aluminium, cement, or fertilisers in your manufacturing process, your products may soon face CBAM costs.

The GTRI Warning

According to GTRI analysis, Indian industry should no longer view CBAM as a regulation affecting only steel and aluminium. The European Commission, in December 2025, proposed extending CBAM from January 2028 to cover roughly 180 additional downstream manufactured goods.

---

The Products That Will Be Affected

Steel and Aluminium Products

As per the draft proposal, the Carbon Border Adjustment Mechanism will be applicable to 180 more products, including:

Category	Examples
Fabricated Metal Products	Structural components, fabricated steel
Tubes and Pipes	Steel tubes, pipes, and fittings
Fasteners	Bolts, nuts, screws, rivets
Structural Components	Beams, columns, girders
Machinery Parts	Engine parts, machine components
Aluminium Containers	Cans, packaging, containers
Other Semi-Finished Goods	Processed steel and aluminium products

Engineering Goods

Sectors likely to be impacted include:

Sector	Examples
Engineering Goods	Industrial machinery, tools
Auto Components	Car parts, automotive assemblies
Machinery	Industrial and agricultural machinery
Aluminium-Based Products	Foils, sheets, profiles, extrusions

The Full List

The proposed expansion will cover fabricated metal products, tubes, pipes, fasteners, structural components, machinery parts, aluminium containers, and other semi-finished and finished engineering goods.

The India Export Basket

These sectors are key segments in India's export basket to Europe. The expansion will affect:

• Engineering goods
• Auto components
• Machinery
• Aluminium-based products
• Other industrial products

---

Sectors Likely to Be Impacted

Engineering Goods

Impact	Description
Direct Impact	CBAM costs on steel and aluminium inputs
Indirect Impact	Carbon compliance requirements for finished goods
Compliance Burden	Need to track embedded emissions across supply chain

Auto Components

Impact	Description
Direct Impact	CBAM costs on steel and aluminium components
Supply Chain Pressure	OEMs demanding carbon compliance
Competitive Pressure	Low-carbon suppliers gaining advantage

Machinery

Impact	Description
Direct Impact	CBAM costs on steel and aluminium parts
Indirect Impact	Carbon footprint of entire product
Market Access	Carbon performance affecting export competitiveness

Aluminium Products

Impact	Description
Direct Impact	CBAM costs on aluminium content
Processing Impact	Emissions from manufacturing processes
Competitive Disadvantage	Higher emissions intensity than global average

The India-EU FTA Context

The proposed CBAM expansion comes at a time when the India–EU Free Trade Agreement (FTA) is expected to be finalised. The FTA provides a framework for engagement but does not exempt Indian exporters from CBAM obligations.

---

The Anti-Circumvention Framework: Closing the Loopholes

What Is Anti-Circumvention?

The Council introduced a new "anti-circumvention" framework designed to prevent exporters from bypassing the tax by making slight modifications to their products or rerouting trade through third countries.

Why This Matters

Mechanism	How It Works
Product Modification	Preventing slight modifications to avoid CBAM
Trade Rerouting	Preventing rerouting through third countries
Leakage Prevention	Ensuring CBAM achieves its climate goals

The EU's Rationale

"The EU remains committed to reducing climate emissions both within the Union and globally. Strengthening the CBAM and closing loopholes that can circumvent our rules is a key part in fulfilling that goal," said Makis Keravnos, Minister of Finance of Cyprus.

What This Means for Exporters

Implication	Action Required
No Easy Shortcuts	Product modifications won't avoid CBAM
No Trade Rerouting	Third-country transhipment won't avoid CBAM
Full Compliance	Only genuine decarbonisation works

The Next Steps

The Council's decision sets the stage for negotiations with the European Parliament later this year to finalise the legal text. This means the rules are still being finalised, but the direction is clear: CBAM is expanding and tightening.

---

The CBAM Tax Burden: 20-35% on Indian Steel

The Tax Burden

Senior executives from major steel producers cautioned that Indian exporters face a potential 20-35% tax burden on shipments to Europe.

The India-Specific Challenge

India's steel emission intensity is currently 2.5 tonnes of CO₂ equivalent per tonne of crude steel compared to the global average of 1.91 tonnes. This gap means Indian steel producers face a significant disadvantage in carbon-constrained export markets.

The CBAM Cost Impact

Production Route	Emissions	CBAM Cost
BF-BOF (coal-based)	~2.4 tCO₂/tonne	~$192 per tonne
Gas-based DRI	Lower	Lower
Scrap-based EAF	Lowest	Lowest

The ICRA Estimate

ICRA estimates that CBAM could negatively affect 15–40 per cent of the steel India exports to the EU between 2026 and 2034 if carbon intensity isn't reduced. CBAM taxes are likely to be $50–140 per tonne between 2026 and 2034, which would be 2-6 per cent of current aluminium prices.

The Sectoral Impact

Sector	Tax Burden
Steel	20-35%
Aluminium	20-35%
Cement	20-35%

Source: FICCI analysis

---

The India-EU FTA CBAM Annexure: A Framework for Protection

What Is the CBAM Annexure?

India has secured an Annex on Carbon Border Measures in the India-EU FTA which aims to strengthen cooperation and support between the two to enhance efforts to reduce greenhouse gas emissions.

The No-Exemption Reality

The FTA does not provide for any exemption to the bloc's carbon border adjustment mechanism. There is no commitment on the part of the EU to change obligations with regard to CBAM or grant India more favourable treatment.

The Technical Dialogue

The Annex establishes a Technical Dialogue wherein India and EU will engage on technical exchanges on implementation of carbon border adjustment measures, including:

• Product scope and embedded emissions coverage
• Monitoring, reporting and verification processes
• The possibility to take into account the carbon price effectively paid
• Exchanges of information to facilitate default values
• Exploring mutual recognition of accreditation bodies

The Carbon Price Offset

The agreement provides for engagement between India and EU authorities to account for the carbon price paid in India and adjust it against the final carbon tax liability payable in the EU.

The SME Protection

To protect small exporters, negotiators secured a dedicated annexure in the FTA. The bilateral work plan guarantees parity with future flexibilities granted by the EU and creates channels to credit domestic carbon taxes paid in India against European levies.

---

The Verification Challenge: Who Verifies the Verifiers?

The Verification Problem

Currently, EU authorities may not recognise Indian verifiers for CBAM purposes. This forces Indian exporters to hire expensive EU auditors, adding to compliance costs.

The FTA Provision

The CBAM annexure includes provisions for verification and recognition of verifiers, aimed at:

• Recognising Indian verification agencies
• Reducing compliance costs for Indian exporters
• Building Indian capacity for carbon verification

What This Means for Exporters

Aspect	Current Situation	With FTA
Verifiers	Must hire EU-recognised auditors	Indian verifiers may be recognised
Cost	High	Lower
Capacity	Limited Indian capacity	Indian capacity built over time

The MSME Impact

SMEs, which are the most vulnerable to verification costs, stand to benefit significantly from recognition of Indian verifiers.

---

The MSME Data Gap: A Critical Vulnerability

The Fundamental Problem

The fundamental problem is the supply chain data gap, and it hits MSMEs disproportionately hard. CBAM requires plant-level, verified emissions data from every part of the production chain.

Why MSMEs Can't Provide Actual Data

Reason	Explanation
No access to supplier data	Large producers often do not share plant-level emissions data
No verification capacity	MSMEs cannot afford third-party verification agencies
No digital reporting systems	Lack of carbon accounting software and trained personnel
No technical expertise	Cannot calculate embedded emissions accurately

The Default Values Risk

If exporters are unable to provide actual data, importers must use default values provided by the European Commission. These default values are set at the highest benchmarks and can sharply inflate carbon costs even when actual emissions are lower.

The MSME Compliance Cost

Meeting the requirement under the carbon tax alone could cost an MSME unit between ₹15 lakh and ₹20 lakh.

The Export Viability Question

If these costs are not addressed through targeted policy support, smaller exporters may find continued access to the EU market commercially unviable despite having competitive products.

---

The UK CBAM: A Second Front

The UK's Plans

The UK is preparing to introduce its own CBAM. The UK's CBAM, which is designed to place a tariff on carbon-intensive imports like steel, aluminum, and cement to level the playing field for domestic manufacturers, has been a major point of anxiety for Indian trade ministries.

The Implications

Implication	Description
Two Markets	CBAM in both EU and UK
Two Compliance Regimes	Different requirements may apply
Increased Costs	Compliance costs in multiple jurisdictions
Strategic Importance	Preparation for both markets is essential

The FTA Discussions

The UK's CBAM has been a major point of anxiety for Indian trade ministries. The UK-India FTA negotiations have kept green levies separate from the trade deal, but the issue remains unresolved.

The Broader Trend

Similar mechanisms are under consideration elsewhere, meaning carbon border taxes could become a global phenomenon.

---

What Exporters Must Do Now

Recommendation 1: Participate in the CCTS

Action	Why It Matters
Register your entity	Start the CCTS compliance process
Understand your target	Know your emission intensity target
Develop a compliance strategy	Meet your target or procure CCCs
Document compliance	Maintain records for verification

Recommendation 2: Reduce Emissions

Action	Why It Matters
Invest in energy efficiency	Reduce emissions and costs
Adopt cleaner production routes	Move toward lower-carbon technologies
Use renewable energy	Reduce Scope 2 emissions
Process optimisation	Improve efficiency

Recommendation 3: Address the MSME Data Gap

Action	Why It Matters
Request verified emissions data	From large domestic producers
Conduct independent verification	Using accredited agencies
Maintain documentation	For CBAM declarations

Recommendation 4: Prepare CBAM Data Packs

Exporters should develop internal CBAM pricing strategies and prepare standardised CBAM data packs for each manufacturing facility, detailing production routes, emissions intensity, verification status, and audit contacts.

Recommendation 5: Engage with the FTA

Action	Why It Matters
Monitor FTA developments	Understand CBAM annexure provisions
Leverage SME support	Access compliance support
Engage with government outreach	Benefit from support programmes

Recommendation 6: Seek Professional Advice

Action	Why It Matters
Engage a carbon advisory firm	Get expert guidance
Develop a comprehensive strategy	Address all aspects of compliance
Stay informed	Monitor regulatory developments

Conclusion: The Carbon Cost Is Now a Line Item

CBAM is not a distant threat. It is already hurting Indian exports. Steel and aluminium exports to the EU fell 24.4% in FY 2025, with steel alone down 35.1%, before any CBAM financial obligation had taken effect.

The 2028 expansion will bring more products, more sectors, and more compliance requirements. The anti-circumvention framework will close loopholes. The UK CBAM will add a second front.

Key Takeaways

Aspect	What You Need to Know
Export Decline	Steel/aluminium exports down 24.4% in FY 2025
Steel Decline	Down 35.1%
CBAM Tax Burden	20-35% on steel exports
2028 Expansion	180+ additional products
Affected Sectors	Engineering goods, auto components, machinery
Anti-Circumvention	New rules to close loopholes
UK CBAM	Coming soon

The Choice Is Yours

Option	Outcome
Act now	Protect export competitiveness, maintain market access, reduce costs
Wait and see	Face higher costs, lose market share, suffer reputational damage