Steel, Aluminium, and CBAM – Sector-by-Sector Impact on Indian Exports

Introduction: The CBAM Reality Check

The Carbon Border Adjustment Mechanism (CBAM) is not 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 FY2025, dropping from $7.71 billion in FY2024 to $5.82 billion. This decline occurred before any CBAM financial obligation had taken effect, suggesting 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 15–22%. The CBAM could add a 20 to 35% tax burden on Indian steel exports to the EU.

This guide provides a detailed, sector-by-sector analysis of CBAM's impact on Indian exports — steel, aluminium, cement, and fertiliser — and what each sector must do to survive and thrive in the new carbon-constrained trade environment.

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The Steel Sector – Ground Zero of the CBAM Shock

The Scale of the Challenge

Steel currently contributes around 12% of India's total CO₂ emissions. India is the world's second-largest steel producer, with an approximate crude steel production of 151 million tonnes in FY 2024-25. In calendar year 2025, the EU imported around 29.7 million tonnes of steel, of which about 2.4 million tonnes came from India — translating into an 8% share.

The Export Numbers

Metric	Value
Steel exports to EU (FY2024)	$7.71 billion (combined with aluminium)
Steel exports to EU (FY2025)	$5.82 billion (combined with aluminium)
Combined decline	24.4%
Steel decline	35.1%
EU share of Indian steel exports	~40%
Indian steel exports to EU (CY2025)	2.4 million tonnes

The CBAM Cost Exposure

Indian steel producers could face duties ranging from $102-119 per tonne over the next decade. According to FICCI's Steel Committee, Indian BF-BOF steel producers could face a 20 to 35% tax burden on exports to the EU.

India's Emissions Intensity Problem

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.

The CBAM Tax Burden

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".

The ICRIER Projection

A study by the Indian Council for Research on International Economic Relations (ICRIER) found that India's steel exports to the EU shall reduce by 24 per cent. The report further noted that "the carbon tax burden falls on Indian firms, adversely affecting gains from exports to the EU".

After the rollout of CBAM, India's iron and steel exports to the region recorded a 13 per cent decline in the following four months through April 2026.

The Combined Impact

Factor	Impact
EU steel quotas	Could reduce Indian exports by 25-30% in FY2026-27
CBAM tax burden	20-35% additional tax on steel exports
Price reduction required	15-22% to remain viable in EU market
Total projected export decline	24-30%

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The Aluminium Sector – A Close Second

The Scale of the Challenge

India's aluminium sector is also facing significant CBAM exposure. The EU is a major market for Indian aluminium, and CBAM's financial obligations are already affecting trade dynamics.

The Export Numbers

Metric	Value
Aluminium exports to EU (FY2024)	Part of $7.71 billion combined
Aluminium exports to EU (FY2025)	Part of $5.82 billion combined
Combined decline	24.4%
Aluminium decline	~10%
EU share of Indian aluminium exports	26%

Who Is Affected?

The key Indian aluminium exporters facing CBAM exposure are:

Producer	CBAM Exposure	Strategic Response
Vedanta	Direct export exposure	Investing in renewable-linked smelters
Hindalco	Direct export exposure	Investing in renewable-linked smelters
NALCO	CBAM poses a great challenge	Does not export directly to US; CBAM is the primary concern

The India-Specific Challenge

Unlike Vedanta and Hindalco, NALCO does not export directly to the US and therefore was not impacted by US tariffs. However, CBAM poses a great challenge before NALCO as the EU market becomes carbon-constrained.

The Aluminium Sector's Response

India's aluminium sector has shown promising intent. Major players like Vedanta and Hindalco are investing in renewable-linked smelters and captive solar and wind projects to cut coal dependence. Policy shifts are enabling easing open access for clean energy, facilitating Virtual Power Purchase Agreements (PPAs) even for industrial clusters.

Aluminium Exports: The Data Gap

In FY2024, India exported 44% of its total steel exports (3.3 million tonnes) and 26% of its aluminium exports, valued at USD 1.9 billion, to the EU.

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Cement and Fertiliser – The Next Wave

Cement Sector Exposure

Metric	Value
CBAM coverage	Yes — cement is covered under CBAM
CBAM exposure	Moderate but growing

Major cement plants owned by UltraTech, Dalmia, JK Cement, Shree Cement, and ACC are part of the first compliance cycle under India's CCTS.

Fertiliser Sector Exposure

Metric	Value
CBAM coverage	Yes — fertilisers are covered under CBAM
CBAM exposure	Moderate

The CBAM Expansion

The EU Council agreed to strengthen the CBAM, expanding its reach to more products. 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.

The Next in Line

According to ICRIER, "Fertilisers and aluminium products, followed by metal products, are next in line to be hurt the most (by CBAM)".

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Comparing CBAM Exposure Across Sectors

Sector	FY2025 Export Value	CBAM Exposure Level	Key Risk Factors
Steel	~$5.82B (combined)	Very High	35.1% decline; 2.5 tCO₂e/t intensity; BF-BOF route
Aluminium	~$5.82B (combined)	High	~10% decline; coal-based power dependence
Cement	Growing	Moderate	Process emissions; growing export exposure
Fertiliser	Growing	Moderate	Energy-intensive production

The Common Thread

Iron, steel, and aluminium account for the overwhelming share of India's CBAM-covered exports. High emissions intensity combined with deep integration into EU value chains makes CBAM a material industrial risk.

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Why Production Route Matters More Than You Think

Steel Production Routes

Production Route	Description	CBAM Exposure	Explanation
Blast Furnace–Basic Oxygen Furnace (BF-BOF)	Traditional coal-based route	Highest	Relies on coal; highest emissions; faces $102-119 per tonne CBAM costs
Gas-based Direct Reduced Iron (DRI)	Uses natural gas	Lower	Lower emissions than BF-BOF
Scrap-based Electric Arc Furnace (EAF)	Uses recycled scrap	Lowest	Lowest emissions

The GTRI report cautioned that production routes will decisively influence export prospects: "Steel made through blast furnace–basic oxygen furnace routes will carry the highest carbon burden, while gas-based direct reduced iron and scrap-based electric arc furnace routes will face progressively lower 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

"In aluminium, the source of electricity matters, with coal-based power sharply increasing the carbon burden and the CBAM cost," the GTRI report noted.

The Strategic Implications

Production methods will play a decisive role in determining export viability. While large, low-emission producers may gain a competitive edge under the new regime, compliance costs and data challenges could push many smaller exporters out of European supply chains.

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The Cost of Inaction: What the Numbers Really Mean

The Financial Impact

Scenario	Cost Implication
Price reduction required to retain market access	15-22%
CBAM tax burden on Indian steel exports	20-35%
CBAM cost per tonne for steel	$102-119 per tonne over the next decade
Steel exports affected	24-30% decline projected

The Export Decline Trend

Year	Steel/Aluminium Exports to EU	Decline
FY2024	$7.71 billion	—
FY2025	$5.82 billion	24.4%
FY2026 (projected)	~$4.4 billion	Additional 24-30% decline

The EU Steel Quotas

The EU's revised steel safeguard measures, effective July 1, 2026, have significantly reduced volume-based import quotas, resulting in a 41% decline in India's share. However, the introduction of India-specific product quotas limits the overall decline to around 30%.

The MSME Vulnerability

Industry representatives warn that the compliance burden could fall unevenly across the supply chain, with smaller exporters facing the greatest risk. "CBAM could become a serious barrier for MSME exporters, not because of product quality or pricing, but due to the lack of access to verified emissions data," said Vinod Kumar, president of the SME Forum.

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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 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

"This gap risks hitting MSMEs harder than larger players and could push many of them out of EU supply chains unless corrective steps are taken," said Ajay Srivastava, GTRI Founder.

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

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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. CBAM was a major sticking point and was the last issue to be resolved during negotiations.

Key Commitments

Commitment	Description
Technical cooperation	Enhanced cooperation on recognition of carbon prices and verifiers
Flexibility	EU will extend flexibilities under CBAM to India if extended to any other nation
Carbon pricing recognition	EU will take into account India's carbon trading system when implemented

The EU's Commitment

"The European Commission has committed under the FTA that it would take into account India's carbon trading system whenever New Delhi implements it in the future under its CBAM regulation".

The CBAM Annexure

The FTA includes provisions for:

• SME compliance support
• Verification and recognition of verifiers
• Carbon price offset mechanisms

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Strategic Recommendations for Each Sector

For Steel Producers

Recommendation	Why It Matters
Accelerate decarbonisation	Reduce emissions intensity from 2.5 to below 1.91 tCO₂e/t
Transition to EAF	Lower-carbon production route faces lower CBAM exposure
Participate in CCTS	Demonstrate carbon compliance; reduce CBAM liability
Document emissions	Verified data is essential for CBAM declarations
Prepare CBAM data packs	Standardised data packs for each manufacturing facility

For Aluminium Producers

Recommendation	Why It Matters
Invest in renewable energy	Reduce coal dependence to lower carbon burden
Set clear reduction targets	Demonstrate commitment to decarbonisation
Participate in CCTS	Demonstrate carbon compliance
Document emissions	Essential for CBAM compliance

For Cement Exporters

Recommendation	Why It Matters
Reduce clinker factor	Use blended cement to reduce emissions
Adopt alternative fuels	Reduce fossil fuel dependence
Participate in CCTS	Demonstrate carbon compliance

For All Exporters

Recommendation	Why It Matters
Develop internal shadow carbon price	Align with EU benchmarks
Prepare standardised CBAM data packs	Detail production routes, emissions intensity, verification status
Engage with EU buyers	Build carbon compliance into contracts
Seek professional advice	Navigate complex CBAM requirements

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How Carboned.in Can Help

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

Our Services

Service	Steel	Aluminium	Cement	Fertiliser
CBAM Exposure Assessment	✅	✅	✅	✅
Emissions Data Preparation	✅	✅	✅	✅
CCTS Compliance Support	✅	✅	✅	✅
Credit Procurement	✅	✅	✅	✅
CBAM Data Pack Preparation	✅	✅	✅	✅
Legal Documentation	✅	✅	✅	✅
Regulatory Advisory	✅	✅	✅	✅

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
Sector Experience	Knowledge of steel, aluminium, cement, and fertiliser sectors
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 reshaping India's export landscape. The steel and aluminium sectors are at ground zero, with cement and fertiliser close behind.

Sector-by-Sector Summary

Sector	Exposure Level	Immediate Action Required
Steel	Very High	Decarbonise; participate in CCTS; prepare CBAM data packs
Aluminium	High	Invest in renewable energy; set reduction targets; participate in CCTS
Cement	Moderate	Reduce clinker factor; adopt alternative fuels; participate in CCTS
Fertiliser	Moderate	Reduce emissions; participate in CCTS

Key Takeaways

Aspect	What You Need to Know
Combined Decline	Steel/aluminium exports to EU down 24.4% in FY2025
Steel Decline	Down 35.1%
CBAM Tax Burden	20-35% on steel exports
Projected Export Decline	24-30%
Price Reduction Required	15–22% to retain market access
India-EU FTA	CBAM annexure with carbon price recognition

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.

• Sector-Specific Assessment: Understand your sector's 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.