EU’s CBAM to Hit Indian Steel, Aluminium Exports from 2026

From January 1, 2026, the European Union’s Carbon Border Adjustment Mechanism (CBAM) will move from a transitional reporting phase to a payment-linked regime, posing a major competitiveness challenge for Indian steel and aluminium exporters.

Impact on Indian Exporters
Although the CBAM levy will be paid by EU importers, the economic burden is expected to be passed on to Indian exporters through price renegotiations and tighter contracts. Estimates by the Global Trade and Research Initiative (GTRI) suggest exporters may need to cut prices by 15–22% to remain competitive.

Carbon Cost Embedded in Price Negotiations
From 2026, CBAM will be factored into every commercial negotiation. EU buyers will assess whether Indian steel and aluminium, after adding the carbon cost, remain competitive compared to EU producers or alternative suppliers. This may lead to:

• Price reductions
• Carbon-linked contractual clauses
• Supplier substitution

Objective of CBAM
CBAM aims to ensure that imported goods face a carbon price equivalent to EU-produced goods, thereby preventing carbon leakage and supporting the EU’s Emissions Trading System (ETS).

Mandatory Emissions Verification
From January 2026:

• Independent verification of emissions data will be compulsory
• Only EU-recognised or ISO 14065–compliant verifiers will be accepted
• Verification will resemble a financial audit, including document review and emissions certification

Sector-Specific Concerns

• In aluminium, the source of electricity is critical; coal-based power significantly raises CBAM costs
• Use of default emission values (often the highest benchmarks) may inflate costs when verified data is unavailable

Challenges for MSME Exporters
A major concern is the lack of access to plant-level emissions data, especially for MSMEs sourcing inputs from large producers. Without verified data:

• EU authorities may impose penal default emission values
• MSMEs risk losing market access despite competitive pricing and quality

Way Forward
CBAM could become a non-tariff barrier for Indian exporters unless India accelerates:

• Emissions measurement and reporting systems
• Data-sharing mechanisms across supply chains
• Transition to cleaner energy sources

If unaddressed, CBAM risks marginalising Indian MSMEs in the EU market, not due to product inefficiency, but because of carbon compliance gaps.

Sources: BL & Mint