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EU’s Carbon Border Adjustment Mechanism (CBAM) and impact on Indian exporters

01 Jan 2026 GS 2 Economy
EU’s Carbon Border Adjustment Mechanism (CBAM) and impact on Indian exporters Click to view full image

What is CBAM?

  • European Union has rolled out the Carbon Border Adjustment Mechanism (CBAM).

  • CBAM is a carbon tax on imports into the EU.

  • Imports are taxed based on the carbon emissions generated during their production.

  • Objective:

    • Prevent carbon leakage

    • Ensure foreign producers bear a carbon cost similar to EU producers under the EU Emissions Trading System.

           Carbon Border Adjustment Mechanism (CBAM) and its implications for India – Explained, pointwise -ForumIAS Blog

Why is CBAM important for India?

  • India is the second-largest exporter of steel and aluminium to the EU, after China.

  • Indian exporters are already under stress due to:

    • 50% duty imposed by the US on steel and aluminium.

  • CBAM will further:

    • Increase landed costs

    • Compress profit margins

    • Reduce price competitiveness in the EU market

Sectors covered under CBAM

Current coverage

  • Steel

  • Aluminium

  • Cement

  • Fertilisers

  • Electricity

  • Hydrogen

India exports mainly steel and aluminium to the EU; exports of other CBAM-covered goods are limited.

Why Indian steel is more affected

  • Most steel in India is produced using blast furnace technology.

  • Blast furnaces:

    • Are carbon-intensive

    • Emit high levels of carbon dioxide

  • Result:

    • Higher carbon tax under CBAM

    • Competitive disadvantage against low-carbon EU producers

How CBAM works in practice

  • EU importers must:

    • Buy CBAM certificates

    • Pay a carbon price equivalent to what EU producers pay under ETS

  • If emissions are high:

    • Import becomes costlier

    • Exporter margins shrink unless costs are passed on

Expected impact on Indian exporters

  • Lower margins for steel and aluminium exporters

  • Exports to EU becoming commercially unviable

  • Companies exploring alternative markets:

    • Africa

    • West Asia

  • Pressure to:

    • Improve energy efficiency

    • Shift to cleaner production technologies

Government and industry response

  • Indian government:

    • Exploring exemption or mitigation under the ongoing India–EU FTA negotiations

  • Industry:

    • Studying whether CBAM will be:

      • Company-specific, or

      • Country-based

  • Analysts note:

    • CBAM may accelerate decarbonisation of Indian manufacturing

CBAM expansion outlook

  • Over time, CBAM may expand to:

    • More sectors

    • Downstream products

  • This will increase:

    • Compliance costs

    • Reporting requirements

  • Long-term effect:

    • Global trade patterns shift towards low-carbon production



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