CBAM and Indian Steel – How the EU's Carbon Tariff Reshapes India's Steel Sector and What Producers Must Do Now

Introduction: Ground Zero of the CBAM Shock

When the European Union's Carbon Border Adjustment Mechanism (CBAM) moved from a reporting-only framework to a payment-linked regime on January 1, 2026, it marked a fundamental shift in global trade. Carbon-intensive products such as steel, cement, aluminium, fertilisers, electricity, and hydrogen now face a carbon price at the EU border.

For India's steel sector, this is ground zero.

India is the world's second-largest steel producer. The country's steel and aluminium exports to the European Union fell 24.4% in FY2025, 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.

And the worst is yet to come. CBAM could add a 20 to 35% tax burden on Indian steel exports to the EU. 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 represents both a challenge and an opportunity.

This guide provides a comprehensive analysis of CBAM's impact on India's steel sector—the numbers, the cost, the production route dynamics, and what steel producers must do now to survive and thrive in the carbon-constrained world.

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The Numbers: What India Has Already Lost

The Export Decline

Metric	Value
Combined steel/aluminium exports decline (FY2025)	24.4%
Steel exports decline (FY2025)	35.1%
Timing	Before any CBAM financial obligation had taken effect

The Significance

The decline occurred before any CBAM financial obligation had taken effect. European buyers are already reorienting toward lower-emission producers, even without the financial penalty.

The Projection

Industry projections suggest that the impact will only intensify as CBAM's financial obligations become fully operational. Indian steel producers may need to absorb price cuts of 15-22% to remain competitive in the EU market.

The IEEFA View

"The decline, which suggests European buyers are already reorienting toward lower-emission producers, underscores what is at stake as India's Carbon Credit Trading Scheme (CCTS) enters its operational phase".

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India's Steel Emission Intensity Problem

The Numbers

Metric	India	Global Average
Emission intensity (tCO₂e/t crude steel)	2.5	1.91

The Gap

India's steel emission intensity is 31% higher than the global average. This gap represents a significant CBAM liability for Indian steel exporters.

Why India's Intensity Is Higher

Factor	Explanation
Coal-based production	India relies heavily on coal for steelmaking
BF-BOF dominance	Blast furnace-basic oxygen furnace is the most carbon-intensive route
Limited scrap availability	Less recycling means more primary production
Ageing infrastructure	Older plants are less efficient

The Global Context

As the GTRI report notes, "India's steel and aluminium sectors are likely to face the most immediate impact, given their dependence on European markets and carbon-intensive production processes".

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Production Route Matters: BF-BOF vs. EAF vs. DRI

The Production Routes

Route	Description	Emission Intensity	CBAM Exposure
BF-BOF (Blast Furnace-Basic Oxygen Furnace)	Traditional coal-based route	Highest (~2.5 tCO₂e/t)	Highest
Gas-based DRI (Direct Reduced Iron)	Uses natural gas	Lower	Lower
EAF (Electric Arc Furnace)	Uses recycled scrap	Lowest	Lowest

Why Production Route Matters

The GTRI report cautioned that "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 India Reality

Route	Share in India	CBAM Impact
BF-BOF	Dominant	Very High
DRI (coal-based)	Significant	High
EAF (scrap-based)	Limited	Low

The Strategic Implication

Indian steel producers with EAF or gas-based DRI routes will have a significant competitive advantage over those with BF-BOF routes.

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The CBAM Cost Calculation: What Indian Steel Faces

The CBAM Certificate Price

Quarter	Price
Q1 2026	EUR 75.36 per tonne CO₂e
Q2 2026	€75.28 per tonne CO₂e

The Cost Calculation

CBAM Cost = (Emissions Intensity – EU Benchmark) × CBAM Certificate Price

The India Estimate

Variable	Assumption
India's emission intensity	2.5 tCO₂e/t
EU benchmark (estimated)	~1.5 tCO₂e/t
Gap	1.0 tCO₂e/t
CBAM certificate price	€75.36/tCO₂e
CBAM cost per tonne of steel	~€75 per tonne

The FICCI Estimate

Vinod Gupta, Senior Member of FICCI's Steel Committee and Executive Director (Commercial) at SAIL, highlighted the sector's predicament: "CBAM could add a 20 to 35% tax burden on Indian steel exports to the EU".

What This Means

Implication	Impact
Export cost increase	Significant
Margin erosion	Severe
Competitiveness loss	Major

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The 20-35% Tax Burden: Real Numbers

The FICCI Estimate

Metric	Value
CBAM tax burden on steel exports	20-35%
Source	Vinod Gupta, SAIL Executive Director

The Real-World Impact

Export Value	CBAM Tax Burden (25%)
₹100 crore	₹25 crore
₹1,000 crore	₹250 crore
₹10,000 crore	₹2,500 crore

The Margin Impact

Scenario	Impact
No CBAM	Normal margins
20% CBAM	Significant margin erosion
35% CBAM	Many exports become unviable

The Price Reduction Requirement

To remain viable in the EU market, many exporters may have to absorb price cuts of 15-22%. This means Indian steel producers will either:

• Accept lower margins
• Pass costs to EU buyers (risking lost market share)
• Find alternative markets

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The Export Decline: 35.1% and Still Falling

The Trend

Year	Steel Exports to EU	Change
FY2024	~$7.71 billion (combined with aluminium)	—
FY2025	~$5.82 billion (combined with aluminium)	-24.4%
FY2026 (projected)	Further decline expected	-24-30% projected

The Drivers

Driver	Impact
CBAM anticipation	Buyers shifting to lower-emission producers
EU quotas	Volume restrictions
Carbon cost	Higher costs for Indian steel
Reputation	Perception of Indian steel as high-carbon

The IEEFA View

"The decline, which suggests European buyers are already reorienting toward lower-emission producers, underscores what is at stake".

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The EU Quota Impact: A Double Hit

The Quota System

The EU's revised steel safeguard measures have significantly reduced volume-based import quotas. Indian steel exports face both:

• Carbon costs (CBAM)
• Volume restrictions (quotas)

The Impact

Factor	Impact on Indian Steel
CBAM	Higher costs per tonne
Quotas	Limited volume
Combined	Significant reduction in EU market access

The Projection

Scenario	Export Decline
CBAM only	24-30%
Quotas only	25-30%
Combined	Up to 40%+

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The India-EU FTA CBAM Annexure: A Lifeline

What Is the CBAM Annexure?

The India-EU FTA, concluded in late January 2026, includes a dedicated annexure on CBAM with provisions to ease compliance for Indian exporters.

The Key Provisions

Provision	What It Means for Steel
Future flexibility	If the EU grants any future flexibility, it will be available to India
Verification	Provisions for recognition of Indian verifiers
Carbon price offset	Engage with EU on taking into account carbon price paid in India

Why This Matters for Steel

Aspect	Implication
Carbon price recognition	CCTS compliance could reduce CBAM liability
Verification	Indian verifiers could reduce compliance costs
Flexibility	India benefits from any future easing

The Government's Commitment

"CBAM was one of the topics which took up a lot of our negotiating capital... there is a separate annexure on dealing with Carbon Border Adjustment Mechanism".

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CCTS: India's Domestic Carbon Price Response

The CCTS Connection

India's Carbon Credit Trading Scheme (CCTS) creates a domestic carbon price. This can:

• Demonstrate carbon compliance to EU buyers
• Reduce CBAM liability through carbon price offset
• Keep carbon value within India

The IEEFA View

"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".

What Steel Producers Must Do

Action	Why It Matters
Participate in CCTS	Demonstrate carbon compliance
Document carbon costs	Support CBAM offset claims
Reduce emissions intensity	Lower CBAM liability
Procure credits	Show carbon costs paid

The IEEFA Recommendation

"A stronger domestic carbon market supports industrial competitiveness and helps ensure that more of any carbon value is recognised and retained within India".

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What Steel Producers Must Do Now

Immediate Actions

Action	Timeline	Priority
Assess CBAM exposure	Immediate	High
Calculate emissions intensity	1-2 weeks	High
Understand production route exposure	1-2 weeks	High
Engage with EU buyers	1-2 weeks	High

Short-Term Actions

Action	Timeline	Priority
Develop CBAM data packs	1-3 months	High
Engage with verifiers	1-3 months	High
Participate in CCTS	1-3 months	High
Procure CCCs	1-3 months	High

Medium-Term Actions

Action	Timeline	Priority
Invest in decarbonisation	6-24 months	Medium
Consider EAF transition	12-36 months	Medium
Explore new markets	6-12 months	Medium
Leverage FTA provisions	6-12 months	Medium

The FICCI Perspective

"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". Reducing this gap is essential for export competitiveness.

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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, 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

Impact	Explanation
Higher costs	Default values inflate CBAM liability
Compliance challenges	Lack of verified data
Competitiveness loss	Higher costs relative to competitors

What MSMEs Must Do

Action	Why
Request verified emissions data	From large producers
Conduct independent verification	Using accredited verifiers
Prepare CBAM data packs	For EU buyers
Engage with FTA provisions	Access SME support

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The New Markets: Diversifying Away from the EU

The Need for Diversification

With EU market access becoming more challenging, Indian steel producers must explore alternative markets.

Potential Markets

Market	Opportunity
Southeast Asia	Growing steel demand
Middle East	Infrastructure development
Africa	Emerging steel markets
Domestic market	India's growing infrastructure needs

The Domestic Advantage

India's steel market is growing rapidly. Domestic demand can absorb steel that might otherwise face CBAM costs in the EU.

The Strategy

Strategy	Why
Diversify export markets	Reduce EU dependency
Focus on domestic market	Growing demand
Target low-carbon buyers	Premium for low-carbon steel

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The Technology Pathways: Decarbonising Steel

The Options

Technology	Description	Potential
EAF transition	Moving to scrap-based production	Significant
Green hydrogen DRI	Using hydrogen instead of coal	Transformative
CCUS	Capturing CO₂ emissions	Moderate
Energy efficiency	Optimising existing plants	Moderate
Fuel switching	Moving to lower-carbon fuels	Moderate

The Hydrogen Pathway

Green hydrogen-based direct reduced iron (DRI) offers the potential for near-zero emissions steelmaking. However, it requires:

• Affordable green hydrogen
• Significant capital investment
• Long-term policy certainty

The IEEFA View

"Industrial investment decisions often span 15–30 years and require confidence in the durability of the price signal". Steel producers need long-term policy certainty to make these investments.

The Investment Case

Factor	Why It Matters
CBAM costs	Rising carbon costs make decarbonisation more attractive
Buyer preferences	Low-carbon steel commands premium
Regulatory pressure	CCTS targets will tighten
First-mover advantage	Early movers capture market share

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The 2028 Expansion: What's Coming Next

The EU Council Decision

The EU Council agreed to strengthen CBAM, expanding it to more products and introducing strict anti-circumvention measures.

Key Changes

Change	Impact on Steel
Expansion to more products	More steel products affected
Anti-circumvention framework	Prevents bypassing the tax
Tightened carbon accounting	Stricter rules for scrap-based production
Timeline	January 1, 2028

What This Means for Indian Steel

Implication	Action
More products affected	Expand CBAM data coverage
Tighter rules	Ensure robust MRV
Limited loopholes	Pursue genuine decarbonisation

The EU Council Statement

"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."

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How Carboned.in Can Help

At Carboned.in, we help Indian steel producers navigate CBAM with clarity and confidence.

Our Services

Service	What We Do
CBAM Exposure Assessment	Assess your CBAM liability
Emissions Data Preparation	Calculate embedded emissions
Production Route Analysis	Assess your route exposure
CCTS Compliance	Meet domestic obligations
CBAM Data Pack Preparation	Prepare for EU requirements
Verification Support	Connect with accredited verifiers
FTA-CBAM Advisory	Leverage the CBAM annexure
Decarbonisation Strategy	Develop a cost-effective plan
Market Diversification	Identify alternative markets

Why Choose Carboned.in?

Reason	Why It Matters
Legal Expertise	Led by Siddharth Gupta, Advocate, Calcutta High Court
Regulatory Knowledge	Deep understanding of CBAM and CCTS
Sector Experience	Knowledge of the steel sector
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 here. And for India's steel sector, the stakes could not be higher. The 35.1% export decline is a warning shot. The 20-35% tax burden is the reality. The 2028 expansion is coming.

But this is also an opportunity. Steel producers that decarbonise early will gain a competitive advantage. Those that participate in CCTS will demonstrate carbon compliance. Those that leverage the India-EU FTA CBAM annexure will reduce their compliance burden.

Key Takeaways

Aspect	What You Need to Know
Export Decline	Steel down 35.1% in FY2025
CBAM Tax Burden	20-35% on steel exports
Emission Intensity	2.5 tCO₂e/t (India) vs 1.91 (global)
Production Route	BF-BOF highest exposure; EAF lowest
CBAM Price	€75.36/tonne (Q1 2026)
FTA Annexure	Flexibility, verification, carbon price offset
2028 Expansion	More products affected

The Choice Is Yours

Option	Outcome
Act now	Assess exposure, decarbonise, participate in CCTS, protect market access
Wait and see	Face higher costs, lose market share, suffer reputational damage

How Carboned.in Can Help

At Carboned.in, we help Indian steel producers navigate CBAM with clarity and confidence.

• CBAM Exposure Assessment: Understand your risk
• Emissions Data Preparation: Calculate embedded emissions
• CCTS Compliance: Meet domestic obligations
• CBAM Data Packs: Prepare for EU requirements
• Decarbonisation Strategy: Develop a cost-effective plan
• Market Diversification: Identify alternative markets

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