New Delhi: Indian exporters of steel and aluminum are bracing for a new wave of cost pressures as the European Union (EU) prepares to enforce its Carbon Border Adjustment Mechanism (CBAM) levy from January 1, 2026. The scheme is designed to impose a carbon tariff on imports of carbon-intensive goods such as iron, steel, aluminum, cement, fertilizers, electricity, and hydrogen, with plans to expand to more sectors later.
CBAM aims to “level the playing field” by charging foreign producers the same carbon costs that EU industries already pay under the EU’s Emissions Trading System (ETS). For Indian exporters, this means they will soon face an additional tariff based on the carbon intensity of their production.
Exports Already Hit
Even before actual CBAM levies begin, Indian exporters are struggling with compliance. Since October 1, 2023, EU importers have been required to submit quarterly reports on the embedded emissions of CBAM-covered imports and disclose any carbon prices paid in the country of origin.
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For many Indian exporters -- particularly MSMEs -- the process of calculating and reporting carbon footprints has been too complex and costly. Several have cut back or stopped shipments altogether. As a result, India’s iron, steel, and aluminum exports to the EU plunged 24.4% -- from $7.71 billion in FY2024 to $5.82 billion in FY2025.
The steepest fall was in iron and steel exports, which dropped 35.1% to $3.05 billion. Articles of iron and steel declined 6.8%, while aluminum exports fell 9.8%. Analysts warn this is only the beginning, as the CBAM levy will be in addition to existing EU safeguard quotas and anti-dumping duties. For example, stainless steel cold-rolled flat products from India already face provisional anti-dumping duties of 13.6% to 34.6%.
India hopes that its forthcoming Carbon Credit Trading Scheme (CCTS), set to begin compliance cycles in FY2025-26, will help offset CBAM costs. Under EU rules, any verifiable domestic carbon price can be deducted from CBAM liability. But India’s scheme remains in a preparatory stage, with weak monitoring and verification systems, and is unlikely to generate a significant carbon price before 2026. Even then, the Indian carbon price is expected to stay below $10 per tonne, compared to the EU ETS average of around €65 ($71). That leaves a large gap exporters would still need to pay.
Lack of Preparedness
Industry experts say that although India has had a two-year transition window, little has been done to build readiness. Exporters lack clarity on emissions reporting, accredited verifiers are in short supply, and MSMEs remain without financial or technical support.
Legal experts note that Indian firms already bear implicit carbon costs, such as higher power tariffs linked to renewable energy obligations. However, it is unclear whether the EU will recognize these as “carbon pricing” for CBAM deductions.
The EU recently announced a small exemption for importers handling less than 50 tonnes of CBAM goods per year, but this does not help Indian exporters since most shipments exceed that volume.
Trade analysts argue that without urgent government action, India’s exporters risk losing market share in one of their most important destinations. The EU is India’s third-largest trading partner, and steel and aluminum are key drivers of that relationship. With CBAM, India’s export competitiveness could erode further, complicating ongoing India-EU FTA negotiations.
The sharp fall in India’s metal exports to the EU shows how CBAM is already reshaping trade flows even before tax collection begins. Unless India builds compliance capacity, accelerates its carbon market, and secures transitional arrangements with Brussels, the EU levy could inflict lasting damage on Indian steel and aluminum producers, particularly MSMEs.
Actions Needed:
- Fast-track Carbon Credit Trading Scheme (CCTS) with robust monitoring and verification
- To ensure Indian carbon prices can offset CBAM liabilities
- Expand pool of accredited verifiers and strengthen MRV (monitoring, reporting, verification)
- To avoid compliance bottlenecks and penalties
- Provide financial support and subsidized tools for MSMEs
- To reduce reporting costs and prevent exit from EU markets
- Set up a centralized helpdesk for exporters
- To simplify quarterly CBAM reporting and avoid confusion
- Negotiate flexibilities with the EU, similar to those offered to the U.S.
- To secure longer phase-in, partial waivers, or recognition of domestic carbon costs