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

Introduction: The CBAM Wave Is Growing

The Carbon Border Adjustment Mechanism (CBAM) is no longer a distant threat. It is not a future proposal. It is here — and it is growing.

From January 1, 2026, CBAM moved from a reporting-only framework to a payment-linked regime, imposing binding financial obligations on EU importers of steel, aluminium, cement, fertilisers, hydrogen, and electricity. For Indian exporters, this means carbon intensity now directly influences export costs, margins, and market access.

But that was just the beginning.

In June 2026, the EU Council agreed to strengthen the CBAM, expanding its reach to more products and introducing strict anti-circumvention measures. While the initial mechanism focused on raw materials like iron, steel, aluminium, cement, and fertilisers, the new rules will now cover over 180 additional processed goods. This expansion is expected to have far-reaching consequences for India's export sectors.

The India-EU Free Trade Agreement (FTA) includes a dedicated CBAM annexure with provisions to ease compliance for exporters, particularly small and medium enterprises (SMEs). But the FTA does not change the CBAM financial obligation. The carbon border tax remains in full effect.

This guide provides a comprehensive analysis of the CBAM expansion, what it means for Indian exporters, how the India-EU FTA's CBAM annexure can help, and what every exporter must do to prepare for the wave that is coming.

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What Is CBAM and How Does It Work?

What Is CBAM?

The Carbon Border Adjustment Mechanism is the European Union's carbon tariff on imported carbon-intensive goods, such as iron, steel, cement, fertilisers, 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.

Why CBAM Exists

The new measures aim to close loopholes and ensure that the EU's climate goals are not undermined by "carbon leakage" — when carbon-intensive production moves to countries with less strict climate policy.

How It 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 Transition

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

Current Sectors Covered

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

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The Current Impact: 24.4% Export Decline Already

The Numbers

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

Metric	Value
Combined steel and aluminium exports (FY2024)	$7.71 billion
Combined steel and aluminium exports (FY2025)	$5.82 billion
Combined decline	24.4%
Steel decline	35.1%
Price reduction required	15-22%
CBAM tax burden on steel	20-35%

What These Numbers Mean

• 24.4% 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 and the scope expands

The Broader Impact

Indian steelmakers expect exports to the EU and UK to decline by up to 40% . India exported 6.6 million metric tonnes of finished steel in FY2025-26, but exports slipped to 0.5 million tonnes in May 2026—significantly below the average monthly shipments recorded over the previous six months.

The Sectoral Reality

Iron, steel, and aluminium account for the overwhelming share of India's CBAM-covered exports. As of 2026, carbon intensity directly influences export costs, margins, and market access.

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The Expansion: 180 Additional Products by 2028

The Council's Decision

In June 2026, the EU Council agreed to strengthen the CBAM, expanding its reach to more products and introducing strict anti-circumvention measures.

The Scope of the Expansion

While the initial mechanism focused on raw materials like iron, steel, aluminium, cement, and fertilisers, the new rules will now cover around 180 additional steel- and aluminium-based products. The European Parliament's ENVI Committee proposed covering these additional products from January 1, 2028.

The Affected Products

The expansion will cover a range of industrial goods including:

• Fabricated metal products
• Machinery parts
• Auto components
• Pipes
• Structural materials
• Tubes and pipes

The Financial Impact

GTRI estimates that by 2030, most industrial products entering the EU could face some form of carbon tax, significantly increasing compliance costs for exporters.

GTRI estimates that at least $1.1 billion in Indian exports will fall within CBAM's scope from 2028.

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The Anti-Circumvention Framework: Closing the Loopholes

What Is Anti-Circumvention?

The EU 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

Risk	Mitigation
Product modification	Exporters cannot avoid CBAM by minor product changes
Trade rerouting	Exporters cannot avoid CBAM by shipping through third countries
Loophole exploitation	EU will close all identified loopholes

The Temporary Exemptions

The Council also clarified the conditions under which temporary exemptions may be granted in exceptional circumstances. These exemptions will be limited and strictly controlled.

The EU's Commitment

"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.

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The Stricter Carbon Accounting Rules: Scrap and Indirect Emissions

The Scrap Accounting Challenge

The proposed changes include stricter carbon accounting norms, particularly for scrap-based production, which is widely used in India. Under the new framework:

• Emissions from pre-consumer scrap would be included in the carbon footprint of final products
• Exporters would be required to provide verifiable proof of scrap origin and classification

The Impact on Scrap-Based Producers

This could impact a substantial portion of India's steel and aluminium sectors, where scrap-based production accounts for a significant share of output.

Indirect Emissions

Another key proposal under consideration is the inclusion of indirect emissions — those arising from electricity consumption — in CBAM calculations. If implemented, this could significantly raise costs for Indian manufacturers, given the country's continued reliance on coal-based power for industrial production.

International Carbon Credits Disallowed

The EU has proposed disallowing the use of international carbon credits for CBAM compliance. This would force exporters to reduce emissions at source or align with domestic carbon pricing systems accepted by the EU.

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What This Means for Indian Exporters

For Steel Exporters

Aspect	Impact
Current burden	20-35% tax burden
Expansion impact	More products affected
Scrap accounting	Stricter rules for scrap-based production
Competitive pressure	Intensifying
Action required	Decarbonise, participate in CCTS, prepare CBAM data packs

For Aluminium Exporters

Aspect	Impact
Current burden	Significant, especially for coal-based producers
Expansion impact	More products affected
Indirect emissions	Electricity consumption costs may rise
Competitive pressure	Growing
Action required	Invest in renewable energy, participate in CCTS

For Engineering and Auto Component Exporters

Aspect	Impact
Expansion impact	New sectors affected
Supply chain	Need for emissions tracking across supply chain
Action required	Prepare CBAM data packs, invest in emissions tracking

The Bottom Line

The expansion of CBAM to 180 additional products means that more Indian exports will face carbon border taxes, and the competitive pressure on Indian exporters will intensify significantly. Sectors likely to be impacted include engineering goods, auto components, machinery, and aluminium-based products—key segments in India's export basket to Europe.

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The India-EU FTA CBAM Annexure: A Lifeline for Exporters

What Is the CBAM Annexure?

The India-European Union Free Trade Agreement (FTA) includes a dedicated annexure on CBAM. The annexure is built around multiple pillars aimed at reducing compliance burdens for Indian exporters.

The FTA Context

The FTA was concluded in late January 2026. The agreement is expected to be signed later in 2026, with implementation likely in 2027. "CBAM took a lot of negotiating capital," said Darpan Jain, Additional Secretary in the Department of Commerce.

Key Provisions

Provision	Description
Dedicated work plan	Comprehensive framework to help India navigate the EU's carbon tax regime
SME support	Provisions to ease compliance for small and medium enterprises
Carbon price recognition	Framework for recognising carbon prices paid domestically
Verification support	Help with measuring embedded carbon and getting it verified

The Rising Compliance Burden

The proposed CBAM expansion comes at a time when the India-EU FTA is expected to be finalised. While the FTA could lower tariffs on EU goods entering India, Indian exports to Europe may simultaneously face rising carbon-related costs, creating an uneven trade dynamic.

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The Four Pillars of the CBAM Annexure

Additional Secretary Darpan Jain outlined the key pillars of the CBAM annexure:

Pillar 1: Flexibility

Aspect	Description
What It Means	In case of flexibility in future, that will be available to India
Why It Matters	Ensures India is not locked into rigid compliance requirements

Pillar 2: SME Compliance

Aspect	Description
What It Means	Help Indian SMEs meet compliance requirements
Why It Matters	SMEs face disproportionate compliance burdens

Pillar 3: Verification

Aspect	Description
What It Means	Provisions for verification and recognition of verifiers
Why It Matters	Currently, EU authorities may not recognise Indian verifiers

Pillar 4: Carbon Price Offset

Aspect	Description
What It Means	Engage with EU authorities on taking into account the carbon price paid in India
Why It Matters	Carbon prices paid in India could be offset against CBAM liabilities

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The CBAM Certificate Price: EUR 75.36 per Tonne

The First Price

The first quarterly price for CBAM certificates was set at EUR 75.36 per tonne of CO₂ equivalent for Q1 2026. The second quarter price was set at €75.28 per tonne for Q2 2026.

The EU ETS Connection

CBAM certificate costs continue to track the current EU ETS price, which is currently trading between EUR 79.4 and EUR 81.8 per tonne. As EU carbon prices rise, CBAM costs will rise with them.

What This Means

This is no longer a compliance exercise on paper. For any exporter of iron, steel, aluminium, cement, fertilisers, hydrogen, or electricity into the EU, carbon cost is now a line item in the cost of goods sold, not a future risk.

The Connection to CCTS

A functioning national carbon market gives Indian producers a documented basis for demonstrating carbon costs already paid, which is directly relevant to CBAM exposure.

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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, not just the exporter's own facility.

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 SME Support in the FTA

"CBAM compliances are a concern among SMEs in terms of verification, determining the value of embedded carbon and ensuring that verifiers are recognised by EU authorities. There are separate provisions under the agreement to address these issues," said Darpan Jain.

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The CCTS Connection: How Domestic Carbon Pricing Can Shield Exporters

The Mechanism

CBAM allows for the deduction of a carbon price already paid in the country of origin. CCTS compliance certificates can serve as evidence of this carbon price.

How CCTS Compliance Helps

Aspect	How CCTS Helps
Carbon Price Evidence	CCTS certificates provide verifiable proof of carbon compliance
CBAM Deduction	CCTS compliance can be used to reduce CBAM liability
Credibility	CCTS is an official, government-backed scheme
Transparency	Verifiable, auditable carbon compliance data
Competitive Advantage	Demonstrates carbon leadership to buyers

The Carbon Price Offset

Discussions are underway on India's emerging carbon pricing framework to ensure that domestic carbon costs can potentially be offset against CBAM liabilities in Europe.

The IEEFA Perspective

"Irrespective of the ongoing international discussions around the EU's Carbon Border Adjustment Mechanism (CBAM), a credible domestic carbon market can strengthen India's long-term industrial competitiveness."

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The Strategic Imperative: 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 and indirect CBAM costs
Process optimisation	Improve efficiency

Recommendation 3: Prepare CBAM Data Packs

Action	Why It Matters
Standardise data packs	For each manufacturing facility
Detail production routes	Show emissions intensity
Document verification status	Provide audit contacts
Maintain documentation	For CBAM declarations

Recommendation 4: Invest in Emissions Tracking

GTRI noted that Indian exporters will need to step up investments in emissions tracking, supply chain transparency, and decarbonisation to remain competitive in the EU market.

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 district-level 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

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How Carboned.in Can Help

At Carboned.in, we help Indian exporters navigate the CBAM expansion with clarity and confidence.

Our CBAM Readiness Services

Service	What We Do
CBAM Exposure Assessment	Evaluate your exposure and risk
CCTS Compliance	Help you meet domestic compliance obligations
Credit Procurement	Buy CCCs to demonstrate carbon compliance
Legal Documentation	Draft contracts and compliance documents
Regulatory Advisory	Stay informed about CBAM and CCTS developments
CBAM Data Pack Preparation	Help you prepare standardised data packs
MSME Support	Address the data gap challenge
FTA Support	Help you leverage the India-EU FTA CBAM annexure

Why Choose Carboned.in?

Reason	Why It Matters
Legal Expertise	Led by Siddharth Gupta, Advocate, Calcutta High Court
Regulatory Knowledge	Deep understanding of CCTS, CBAM, and trade policy
Practical Experience	Real-world experience with compliance and trading
End-to-End Support	From assessment to compliance

Your first consultation is completely free. No obligation. Just honest advice.

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Conclusion

CBAM is not a distant threat. It is already hurting Indian exports. And it is growing. The expansion to 180 additional products by 2028, combined with stricter carbon accounting rules and the anti-circumvention framework, means that more Indian exports will face carbon border taxes, and the competitive pressure will intensify significantly.

Key Takeaways

Aspect	What You Need to Know
Current Decline	Steel/aluminium exports down 24.4% in FY 2025
Steel Decline	Down 35.1%
CBAM Certificate Price	EUR 75.36 per tonne
CBAM Tax Burden	20-35% on steel exports
CBAM Expansion	180 additional products from January 1, 2028
Scrap Accounting	Pre-consumer scrap emissions to be included
Indirect Emissions	Electricity consumption emissions may be included
Anti-Circumvention	New framework to prevent bypassing the tax
GTRI Estimate	$1.1 billion in Indian exports affected by 2028

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

How Carboned.in Can Help

At Carboned.in, we help Indian exporters navigate the CBAM expansion with clarity and confidence.

• CBAM Readiness Assessment: Understand your exposure
• CCTS Compliance: Meet domestic obligations
• Credit Procurement: Demonstrate carbon compliance
• CBAM Data Packs: Prepare for EU requirements
• Legal Documentation: Ensure full compliance
• FTA Support: Leverage the India-EU FTA CBAM annexure

Your first consultation is completely free. No obligation. Just honest advice.