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 per cent in FY2025, dropping from $7.71 billion in FY2024 to $5.82 billion — with steel bearing the brunt of the decline. This decline occurred before any CBAM financial obligation had taken effect, suggesting European buyers are already reorienting toward lower-emission producers.

The levy of the carbon border tax in Europe is effective from 1st January 2026 for the sectors covered. 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. To retain market access, exporters may be forced to accept price reductions in the range of 15–22% .

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, making the sector's response to CBAM critical to India's path towards its 2070 net-zero goal.

India is the world's second-largest steel producer, with an approximate crude steel production of 151 million tonnes in FY 2024-25. In FY2024, India exported 7.5 million tonnes of steel, of which 3.3 million tonnes went to Europe — accounting for 44% of total steel exports.

The Export Numbers

Metric	Value
Steel exports to EU (FY 2024)	$7.71 billion (combined with aluminium)
Steel exports to EU (FY 2025)	$5.82 billion (combined with aluminium)
Decline	24.4% combined; steel alone down 35.1%
EU share of Indian steel exports	44%
Indian steel exports to EU	~2.2 million tonnes

The CBAM Cost Exposure

Indian BF-BOF steel producers could face CBAM costs of €50–180+ per tonne depending on emissions verification status.

According to Rystad Energy, India's steel industry faces rising carbon costs under the EU CBAM, up to $116 per tonne by 2034 , impacting 25% of India's steel exports to Europe.

Who Is Affected?

The analysis covers five of India's biggest primary steelmakers — Tata Steel, JSW Steel, ArcelorMittal Nippon Steel India (AM/NS India), Jindal Steel Limited, and SAIL — along with the Indian Steel Association.

Producer	CBAM Exposure	Strategic Response
Tata Steel	90-95% domestic market; European operations transitioning to EAF	Leveraging European operations; transitioning to green steel
JSW Steel	Significant export exposure	Investing in decarbonisation
SAIL	Export exposure	Facing higher compliance costs
AM/NS India	Export exposure	Accelerating decarbonisation
Jindal Steel	Export exposure	Adapting to new trade measures

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."

Major Producers' Response

Major producers such as Tata Steel, JSW Steel, and SAIL are likely to face higher compliance costs and tighter trade conditions. Analysts say the decision underscores Europe's push to protect its domestic green steelmakers while pressuring foreign suppliers to adopt cleaner technologies.

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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 (FY 2024)	Part of $7.71 billion combined
Aluminium exports to EU (FY 2025)	Part of $5.82 billion combined
Decline	Part of 24.4% combined decline
Key exporters	Hindalco, Vedanta, NALCO

Who Is Affected?

The key Indian aluminium exporters facing CBAM exposure are:

Producer	CBAM Exposure	Strategic Response
Vedanta	Direct export exposure	Goal: 25% reduction in absolute emissions by 2030; investing in renewable-linked smelters and captive solar and wind projects
Hindalco	Direct export exposure	Investing in renewable-linked smelters and captive solar and wind projects
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 Promise

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.

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Cement and Fertiliser – The Next Wave

Cement Sector Exposure

Metric	Value
Exports to EU	~$250 million
CBAM coverage	Yes
CBAM exposure	Moderate but growing
Key exporters	UltraTech, Dalmia, JK Cement, Shree Cement, ACC

Note: 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
Exports to EU	~$300 million
CBAM coverage	Yes
CBAM exposure	Moderate

The CBAM Timeline for Cement and Fertiliser

CBAM currently covers steel, aluminium, cement, fertilisers, hydrogen, and electricity. The carbon tax is currently levied on steel and aluminium products, with cement and fertiliser expected to face full implementation shortly.

Why These Sectors Matter

Cement, like steel, is a hard-to-abate sector with significant process emissions. Fertiliser production is also energy-intensive and carbon-heavy. Both sectors will face increasing CBAM pressure as the mechanism expands and carbon prices rise.

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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 in FY2025; 2.5 tCO₂e/t intensity; BF-BOF route
Aluminium	~$5.82B (combined)	High	Coal-based power dependence; CBAM poses great challenge for NALCO
Cement	~$250M	Moderate	Process emissions; growing export exposure
Fertiliser	~$300M	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 €50–180+ 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; Tata Steel UK transitioning to EAF

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; Vedanta and Hindalco investing in renewable-linked smelters

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 BF-BOF steel	€50–180+ per tonne
Projected CBAM cost by 2034	$116 per tonne
Steel exports affected by 2034	25%

The Export Decline Trend

Year	Steel/Aluminium Exports to EU	Decline
FY2024	$7.71 billion	—
FY2025	$5.82 billion	24.4%

The GDP Impact

Estimates by several economists predict that CBAM could drag down India's GDP by 0.02–0.03 per cent between 2026 and 2030.

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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	Tata Steel UK's transition shows the path
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
Set clear reduction targets	Vedanta's 25% absolute emissions reduction target by 2030 is a model
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, audit contacts
Engage with EU buyers	Build carbon compliance into contracts
Seek professional advice	Navigate complex CBAM requirements

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

What Is the CBAM Annexure?

The India-EU Free Trade Agreement includes a dedicated CBAM annexure to address exporters' concerns and support SMEs. The annexure is built around multiple pillars aimed at reducing compliance burdens for Indian exporters.

Key Provisions

Provision	Description
Verification processes	Support for exporters in meeting EU verification requirements
Calculation of embedded carbon emissions	Guidance on accurate emissions calculation
Engagement with EU authorities	Ease compliance for smaller exporters
SME support	Special provisions to protect small and medium enterprises

The Implementation Timeline

Phase	Timeline
FTA Agreement	Expected 2026
CBAM Annexure Implementation	Likely 2027

What This Means for Exporters

• The FTA provides a framework for addressing CBAM concerns
• The CBAM annexure could ease compliance for exporters
• SMEs may receive special support provisions
• The FTA does not change the CBAM financial obligation — it provides a framework for managing it

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How Carboned.in Can Help

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

Our Sector-Specific 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.