The CBAM Reality Check – Why Indian Steel and Aluminium Exports Are Already Under Pressure
Introduction: The CBAM Era 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. For Indian exporters, this means carbon intensity now directly influences export costs, margins, and market access.
The numbers are stark. India's steel and aluminium exports to the European Union fell 24.4% in FY 2025 , dropping from $7.71 billion in FY2024 to $5.82 billion — with steel bearing the brunt of the decline. Steel alone was down 35.1% .
This decline occurred before any CBAM financial obligation had taken effect — suggesting European buyers are already reorienting toward lower-emission producers. The decline underscores what is at stake as India's Carbon Credit Trading Scheme (CCTS) enters its operational phase.
To remain viable in the EU market, many exporters may have to absorb price cuts of 15–22% . The CBAM could add a 20 to 35% tax burden on Indian steel exports to the EU.
This guide provides a comprehensive analysis of CBAM, its impact on Indian exporters, how participation in India's CCTS can help protect export competitiveness, and what every exporter must do to prepare.
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. 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. The sectors facing the sharpest exposure right now are steel and aluminium.
The Numbers: 24.4% Drop Before CBAM Even Bites
The Data
| 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% |
| India's steel emission intensity | 2.5 tCO₂e/tonne |
| Global average steel emission intensity | 1.91 tCO₂e/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 CBAM Certificate Price
The first quarterly price for CBAM certificates was set at EUR 75.36 per tonne of CO₂ equivalent for Q1 2026.
The CBAM Burden
According to GTRI, although the CBAM levy will technically be paid by EU importers, the financial burden will effectively be transferred to Indian suppliers through tougher price negotiations, stricter sourcing norms, and reduced margins.
CBAM-Covered Sectors: Who Is Affected?
Iron and Steel
| Metric | Value |
|---|---|
| Export decline (FY2025) | 35.1% |
| CBAM tax burden | 20-35% |
| India's emission intensity | 2.5 tCO₂e/tonne |
| Global average | 1.91 tCO₂e/tonne |
| Key exporters | Tata Steel, JSW Steel, SAIL, ArcelorMittal Nippon Steel India |
Aluminium
| Metric | Value |
|---|---|
| Export decline (FY2025) | Part of 24.4% combined decline |
| Key exporters | Hindalco, Vedanta, NALCO |
Cement and Fertiliser
| Sector | CBAM Coverage | Exposure Level |
|---|---|---|
| Cement | Yes | Growing |
| Fertiliser | Yes | Moderate |
The CBAM Expansion
The EU is planning to expand CBAM coverage. Cement and fertilisers are also exposed as obligations expand post-2025.
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.
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.
The IEEFA Perspective
Regardless of how discussions on the EU's CBAM evolve, a credible domestic carbon market can strengthen India's long-term industrial competitiveness. The design choices made in the CCTS — from benchmark calibration to the eventual role of auctioning — will shape how much carbon value is recognised and retained at home.
Production Route Matters: Why BF-BOF Steel Faces the Highest Burden
Steel Production Routes
| Production Route | CBAM Exposure | Explanation |
|---|---|---|
| Blast Furnace–Basic Oxygen Furnace (BF-BOF) | Highest | Relies on coal; highest emissions |
| 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 Challenge
India is driving global coal-based steel expansion. Japanese steelmaker JFE Steel is planning a $2 billion coal-based joint venture with JSW Steel. This means a significant portion of India's future steel capacity will carry the highest CBAM exposure.
Aluminium Production Routes
| Production Route | CBAM Exposure | Explanation |
|---|---|---|
| Coal-based power | Highest | Coal-fired electricity increases carbon burden |
| Renewable-based power | Lower | Clean electricity reduces carbon burden |
What This Means for Exporters
Production routes will decisively influence export prospects. Steel made through BF-BOF routes will carry the highest carbon burden, while gas-based DRI and scrap-based EAF routes will face progressively lower exposure.
The MSME Data Gap: A Critical Vulnerability
The Problem
A key problem is that large producers often do not share plant-level emissions data with MSMEs that source steel or aluminium from them, leaving smaller firms without the verified carbon information required under CBAM.
The Default Values Risk
In the absence of such data, EU authorities may apply default emission values , usually set at the highest benchmarks, which can sharply inflate carbon costs even when actual emissions are lower.
The Impact on MSMEs
Industry representatives warn that the compliance burden could fall unevenly across the supply chain, with smaller exporters facing the greatest risk.
What MSMEs Must Do
- Request verified emissions data from large producers
- Conduct independent verification using accredited agencies
- Prepare standardised CBAM data packs
- Engage with the India-EU FTA CBAM annexure provisions
The India-EU FTA and the CBAM Annexure
The FTA Context
The India-European Union Free Trade Agreement (FTA) was concluded in late January 2026. The FTA includes a dedicated annexure on CBAM.
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 FTA Does Not Change CBAM
The FTA does not change the CBAM financial obligation. It provides a framework for managing it, but the carbon border tax remains in full effect.
Carbon Costs Are Quietly Eroding Tariff Gains
Carbon costs are quietly eroding the tariff gains from the India-EU Free Trade Agreement. Exporters must understand that CBAM applies full financial liability from January 2026.
How CCTS Can Shield Exporters from CBAM
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 IEEFA Perspective
"Irrespective of the ongoing international discussions around the European Union's Carbon Border Adjustment Mechanism (CBAM), a credible domestic carbon market can strengthen India's long-term industrial competitiveness."
What Matters Now
What matters now is how the EU's recognition of carbon prices paid in third countries will interact with India's market design, and how the CCTS can be calibrated so that domestic carbon costs are credited at the border.
The CBAM-Aligned Tier Proposal
What Is Being Proposed?
A "CBAM-aligned Tier" within the CCTS is being discussed. This would provide additional confidence to EU importers and potentially reduce CBAM liability for Indian exporters.
How It Would Work
| Aspect | Description |
|---|---|
| Compliance | Entities would need to meet higher compliance standards |
| Verification | Enhanced third-party verification requirements |
| Transparency | Public disclosure of compliance data |
| Recognition | EU acceptance for CBAM deduction |
Why This Matters
- It would create a clear pathway for exporters
- It would provide additional confidence to EU buyers
- It would demonstrate India's commitment to carbon reduction
- It would help India retain carbon value within the domestic system
What Exporters Should Do
- Monitor developments regarding the CBAM-aligned Tier
- Prepare by participating in CCTS now
- Engage with industry associations and government on the issue
Strategic Recommendations for Exporters
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: 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 |
The IEEFA Perspective: A Credible Domestic Carbon Market Matters
The Core Insight
A new report by IEEFA maps the trajectory of the CCTS and makes recommendations on the decisions that will shape the scheme's trajectory.
Four Interconnected Themes
The analysis is structured around four interconnected themes :
- Financial market participation
- The design choices India faces in responding to border carbon costs (CBAM)
- Sectoral expansion including the implications of incorporating the power sector
- Managing offsets and Article 6 opportunities
The Key Finding
"A credible domestic carbon market can strengthen India's long-term industrial competitiveness, regardless of how discussions on the EU's Carbon Border Adjustment Mechanism (CBAM) evolve."
The Window of Opportunity
"Determining its trajectory now is sequencing choices, and the window to shape them is open before path dependencies harden. Priority should go to foundational elements: credible stringency, robust MRV, and genuine enforcement."
The CBAM 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.
Key Changes
| Change | Impact |
|---|---|
| Expansion to 180 additional products | More Indian exports affected |
| Anti-circumvention framework | Prevents exporters from bypassing the tax |
| Tightened carbon accounting | Stricter rules for scrap-based production |
| Timeline | January 1, 2028 |
What This Means for Exporters
- CBAM coverage will expand significantly in 2028
- More Indian products will face carbon border taxes
- Preparation is essential
How Carboned.in Can Help
At Carboned.in, we help Indian exporters navigate CBAM 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 |
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
CBAM is not a distant threat. It is already hurting Indian exports. Participation in the CCTS is a strategic imperative for exporters to Europe.
Key Takeaways
| Aspect | What You Need to Know |
|---|---|
| CBAM Effective Date | January 1, 2026 |
| Combined Export 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 |
| CCTS Shield | CCTS compliance can reduce CBAM liability |
| CBAM Expansion | 180 additional products from January 1, 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 CBAM 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
Your first consultation is completely free. No obligation. Just honest advice.
How Carboned.in can help
Our team covers every dimension of India's carbon market — pick the service that matches where you are.
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?+
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 certificate price?+
EUR 75.36 per tonne of CO₂ equivalent for Q1 2026.
How can CCTS help with CBAM?+
CCTS compliance can be used to demonstrate carbon compliance and potentially reduce CBAM liability.
What is the CBAM tax burden?+
20-35% tax burden on Indian steel exports to the EU.
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 India-EU FTA CBAM annexure?+
A dedicated annexure in the FTA with provisions to ease compliance for exporters.
How does production route affect CBAM exposure?+
BF-BOF steel has the highest exposure; EAF steel has the lowest. Coal-based aluminium has higher exposure than renewable-based aluminium.
When will CBAM expand to more products?+
From January 1, 2028, CBAM will cover around 180 additional steel- and aluminium-based manufactured products.
What should exporters do now?+
Participate in CCTS, reduce emissions, prepare CBAM data packs, and seek professional advice.
How can Carboned.in help?+
We provide CBAM readiness assessment, CCTS compliance support, credit procurement, legal documentation, and regulatory advisory.
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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