The CBAM Impact on Indian Exports – Why 2026 Marks a Tipping Point for Steel and Aluminium
Introduction: The Tipping Point Has Arrived
The Carbon Border Adjustment Mechanism (CBAM) is no longer a distant threat. It is not a future proposal. It is here — and it is already reshaping India's export landscape.
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. The levy of the carbon border tax in Europe is effective from 1st January 2026 for the sectors covered.
The numbers are stark. India's steel and aluminium exports to the European Union fell 24.4% in FY 2025, with steel alone down 35.1% — before any CBAM financial obligation had taken effect. The decline suggests European buyers are already reorienting toward lower-emission producers.
To remain viable in the EU market, many exporters may have to absorb price cuts of 16-22%. The CBAM could add a 20-35% tax burden on Indian steel exports to the EU. ICRA estimates that CBAM could negatively affect 15-40% of the steel India exports to the EU between 2026 and 2034 if carbon intensity isn't reduced.
This guide provides a comprehensive analysis of CBAM's impact on Indian exports, what the India-EU FTA's CBAM annexure means for exporters, and what every exporter must do to protect their business.
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 |
Sectors Covered
CBAM currently covers six sectors: iron and steel, aluminium, cement, fertilisers, hydrogen, and electricity. India's total exports of CBAM products to the EU are substantial, with iron and steel alone accounting for a significant share.
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. EU importers would be required to purchase and furnish CBAM certificates to a certain threshold in advance.
The Numbers: 24.4% Drop Before CBAM Even Bites
The Data
| Metric | Value |
|---|---|
| Combined steel and aluminium exports (FY2024) | ~$7-8 billion |
| Combined steel and aluminium exports (FY2025) | ~$5 billion |
| Combined decline | 24.4% |
| Steel decline | 35.1% |
| Price reduction required | 16-22% |
| CBAM tax burden on steel | 20-35% |
| Steel exports affected | 15-40% between 2026 and 2034 |
| CBAM cost (BF-BOF steel) | ~$192 per tonne |
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
The GTRI Warning
The Global Trade Research Initiative (GTRI) has warned that Indian exports of steel and aluminium to the European Union are likely to face a major competitiveness challenge starting January 1, 2026, as CBAM shifts from a reporting-only phase to a regime linked to actual payments.
The CBAM Cost Impact
For example, steel produced via the Blast Furnace-Basic Oxygen Furnace (BF-BOF) method generates about 2.4 tonnes of CO₂ per tonne, leading to a CBAM cost of roughly $192 per tonne. CBAM taxes are likely to be $50-140 per tonne between 2026 and 2034, which would be 2-6% of current aluminium prices.
The CBAM Tax Burden: 20-35% on Indian Steel
The Tax Burden
Under the EU's Carbon Border Adjustment Mechanism, Indian exports of steel, aluminium, and cement to the EU could face tariffs of 20-35%.
The Production Route Factor
The production method matters significantly:
| Production Route | CBAM Exposure | Explanation |
|---|---|---|
| Blast Furnace-Basic Oxygen Furnace (BF-BOF) | Highest | Relies on coal; highest emissions; ~$192 per tonne CBAM cost |
| Gas-based Direct Reduced Iron (DRI) | Lower | Uses natural gas; lower emissions |
| Scrap-based Electric Arc Furnace (EAF) | Lowest | Uses recycled scrap; lowest emissions |
The India-Specific Challenge
India's steel emission intensity is significantly higher than the global average. This gap means Indian steel producers face a significant disadvantage in carbon-constrained export markets.
The Competitiveness Impact
The estimated tariff of 20-35% could reduce the competitiveness of Indian metals in the EU market. India's metal sector, with exports worth over $8 billion, is particularly vulnerable to CBAM's carbon tax.
Sector-by-Sector Impact
Iron and Steel
| Metric | Value |
|---|---|
| Export decline (FY2025) | 35.1% |
| CBAM tax burden | 20-35% |
| Exports affected (2026-2034) | 15-40% |
| CBAM cost (BF-BOF) | ~$192 per tonne |
| Key exporters | Tata Steel, JSW Steel, SAIL, ArcelorMittal Nippon Steel India |
Aluminium
| Metric | Value |
|---|---|
| Export decline (FY2025) | Part of 24.4% combined decline |
| CBAM tax burden | 20-35% |
| CBAM cost | $50-140 per tonne |
| Key exporters | Hindalco, Vedanta, NALCO |
Cement and Fertiliser
| Sector | CBAM Coverage | Exposure Level |
|---|---|---|
| Cement | Yes | Growing |
| Fertiliser | Yes | Moderate |
The CBAM Expansion
The EU has announced plans to expand CBAM coverage to additional products. Reports indicate that the EU is planning to expand CBAM to cover around 180 additional steel- and aluminium-based manufactured products from January 1, 2028.
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, particularly small and medium enterprises (SMEs).
The FTA Context
The FTA was concluded in late January 2026. "CBAM took a lot of negotiating capital," said Darpan Jain, Additional Secretary in the Department of Commerce. The agreement is expected to be signed later in 2026, with implementation likely in 2027.
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 Government's Perspective
Additional Secretary Darpan Jain said: "CBAM compliances are a concern among SMEs in terms of verification, in terms of finding out what is the value of embedded carbon, in terms of ensuring that the verifiers are recognised by the EU authorities. So, there are separate provisions".
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 |
The Carbon Price Offset Mechanism
"As you would know, India also is developing its own carbon pricing mechanism. So, how to offset what is paid in India from what is paid in Europe, so even that is part of it," Jain noted.
Carbon Price Offset: The Key to CBAM Relief
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.
India's Carbon Pricing Mechanism
India is developing its own carbon pricing mechanism. The India-EU FTA includes provisions to offset what is paid in India from what is paid in Europe. 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.
What This Means
| Aspect | Implication |
|---|---|
| CCTS recognition | EU may recognise carbon prices paid through India's CCTS |
| CBAM deduction | CCTS compliance could reduce CBAM liability |
| Export competitiveness | Indian exporters could remain competitive in EU markets |
| Value retention | Carbon value stays within India |
The EU's Position
India is unlikely to get an exemption from the EU's CBAM. Instead, the EU may be willing to offer flexibilities and alternative mechanisms, such as equivalent measures, capacity building and funding, as both sides agree to address the "uncertainty" element in the free trade agreement talks.
Verification and Recognition of Verifiers
The Verification Challenge
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 |
What This Means for SMEs
SMEs, which are the most vulnerable to verification costs, stand to benefit significantly from recognition of Indian verifiers. "CBAM compliances are a concern among SMEs in terms of verification, in terms of finding out what is the value of embedded carbon, in terms of ensuring that the verifiers are recognised by the EU authorities," said Darpan Jain.
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 SME Support in the FTA
"CBAM compliances are a concern among SMEs in terms of verification, in terms of finding out what is the value of embedded carbon, in terms of ensuring that the verifiers are recognised by the EU authorities. So, there are separate provisions," said Darpan Jain.
The CBAM Expansion: 180 Additional Products by 2028
The Proposed Expansion
The EU has announced plans to expand CBAM coverage to additional products. Reports indicate that the EU is planning to expand CBAM to cover around 180 additional steel- and aluminium-based manufactured products from January 1, 2028.
Key Changes
| Change | Impact |
|---|---|
| Expansion to additional products | More Indian exports affected |
| Timeline | 2028 onwards |
What This Means for Exporters
- CBAM coverage will expand significantly
- More Indian products will face carbon border taxes
- Preparation is essential
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 |
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.
Conclusion: Protect Your Export Competitiveness
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 decline will intensify as CBAM costs are fully applied.
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 |
| CBAM Cost (BF-BOF) | ~$192 per tonne |
| Price Reduction Required | 16-22% |
| Exports Affected | 15-40% of steel exports (2026-2034) |
| FTA Annexure | Dedicated CBAM framework with four pillars |
| CBAM Expansion | Additional products from 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 |
📞 Ready to Protect Your Export Competitiveness?
Book a free consultation with Siddharth Gupta, Advocate, Calcutta High Court.
- Assess your CBAM exposure
- Develop a CCTS compliance strategy
- Purchase CCCs to demonstrate carbon compliance
- Ensure legal and regulatory compliance
Your first consultation is completely free. No obligation. Just honest advice.
How Carboned.in can help
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Frequently Asked Questions
What is CBAM?+
The EU's Carbon Border Adjustment Mechanism — a carbon tariff on imports effective from January 1, 2026.
What sectors are covered by CBAM?+
Iron and steel, aluminium, cement, fertilisers, hydrogen, and electricity.
How has CBAM affected Indian exports?+
Steel and aluminium exports to the EU fell 24.4% in FY 2025, with steel down 35.1%, before any CBAM financial obligation had taken effect.
What is the CBAM tax burden?+
20-35% tax burden on Indian steel exports to the EU.
What is the India-EU FTA CBAM annexure?+
A dedicated annexure in the FTA with provisions to ease compliance for exporters, especially SMEs.
What are the four pillars of the CBAM annexure?+
Flexibility, SME compliance, verification, and carbon price offset.
What is carbon price recognition?+
The EU will take into account India's carbon trading system when implemented, allowing carbon prices paid in India to be offset against CBAM liabilities.
What is the MSME data gap?+
Smaller exporters often lack verified emissions data from large producers, exposing them to high default emission values.
What is the CBAM cost for BF-BOF steel?+
Approximately $192 per tonne.
When will CBAM expand?+
The EU has announced plans to expand CBAM coverage to additional products by 2028.
Siddharth Gupta is the founder of Carboned.in and specialist counsel for India's carbon compliance framework — advising obligated entities, project developers, and buyers on CCTS, CR-I registration, and credit transactions.
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