India’s Metal Exports Face 22% Price Cut as EU Carbon Tax CBAM Begins

EU’s Carbon Border Adjustment Mechanism (CBAM) is reshaping global metal trade and challenging India’s steel and aluminium exporters.(Representing ai image)

CBAM Explained: How EU’s Carbon Tax Threatens India’s Metal Exports

-Dr. Sanjaykumar Pawar
Economic Analyst

Introduction: A Carbon Tax That Redefines Global Trade
What Is CBAM? Understanding the World’s First Carbon Border Tax
Why January 1 Matters: CBAM Goes Live
India–EU Trade Ties and the Importance of Metal Exports
Why Indian Metal Exports Are Vulnerable
The 15–22% Price Cut Threat: What It Really Means
Blast Furnace vs Electric Arc Furnace: A Structural Disadvantage
MSMEs at the Frontline of the CBAM Shock
Is CBAM About Climate or Commerce?
WTO Rules and the CBDR Debate
Data Snapshot: Emissions, Trade Exposure, and Cost Impact
How Other Countries Are Positioned
What Can India Do? Policy and Industry Responses
Long-Term Implications for India’s Industrial Strategy
Conclusion: Carbon Tax or Carbon Protectionism?
Frequently Asked Questions (FAQ Schema)
Sources and References

1. Introduction: A Carbon Tax That Redefines Global Trade

From January 1, global trade entered a new era. The European Union officially began implementing the Carbon Border Adjustment Mechanism (CBAM)—the world’s first carbon tax on imports.

For India, the implications are serious. According to trade experts and think tanks, Indian metal exporters may need to slash prices by 15–22% to remain competitive in the EU market. The hardest hit? Steel, aluminium, and iron exports, sectors that employ millions and anchor India’s manufacturing ambitions.

This is not just a climate policy. It is a structural shift in how global trade works, where carbon intensity becomes as important as price and quality.

2. What Is CBAM? Understanding the World’s First Carbon Border Tax

The Carbon Border Adjustment Mechanism (CBAM) is a landmark climate policy introduced by the European Union (EU). Often described as the world’s first carbon border tax, CBAM aims to make global trade fairer while accelerating the fight against climate change. Below is a clear, human-friendly explanation of what CBAM is, how it works, and why it matters.

🌍 What Is CBAM?

CBAM is a policy tool designed to prevent “carbon leakage.” Carbon leakage happens when companies move production to countries with weaker environmental regulations to avoid higher climate costs. While this may lower expenses for businesses, it increases global emissions and undermines climate goals.

CBAM ensures that imported goods are subject to the same carbon costs as products made within the EU. In simple terms, if you want to sell certain products in the EU, you must pay for the carbon emissions involved in producing them—no matter where they are made.

⚙️ How Does CBAM Work?

Under CBAM:

Importers into the EU must pay a carbon price equivalent to what EU producers pay under the EU Emissions Trading System (ETS).
The ETS already requires EU companies to buy permits for the carbon they emit. CBAM extends this principle to imports.
The goal is to level the playing field between EU manufacturers and foreign producers.

This means climate responsibility is built directly into international trade.

🏭 Which Goods Are Covered Under CBAM?

CBAM currently applies to carbon-intensive goods, including:

Steel and iron
Aluminium
Cement
Fertilisers
Chemicals
Electricity
Oil refinery products

These sectors are targeted because they produce high levels of greenhouse gas emissions and are widely traded across borders.

💰 What Happens to Countries With Lower Environmental Standards?

If a country has lower environmental standards, its exports to the EU will face a financial penalty at the border. The importer must pay the difference between the carbon price in the exporting country (if any) and the EU carbon price.

This encourages non-EU countries to:

Improve environmental regulations
Invest in cleaner production methods
Adopt carbon pricing systems

🌱 Why CBAM Matters

Prevents companies from avoiding climate rules
Protects EU industries from unfair competition
Encourages global emission reductions
Aligns trade with climate action

CBAM is more than a tax—it’s a powerful climate and trade policy. By linking environmental responsibility with global commerce, the EU is setting a precedent that could reshape how the world trades in a low-carbon future.

3. Why January 1 Matters: CBAM Goes Live

January 1 is not just another date on the calendar for global exporters—it marks a critical turning point with the Carbon Border Adjustment Mechanism (CBAM) officially going live. While CBAM will be fully operational by 2026, the reality is that its reporting and compliance phase has already begun, and the impact is being felt right now, especially in developing economies like India.

What Changed on January 1?

From January 1, exporters shipping carbon-intensive goods to the European Union entered a new regulatory era. Even without full taxation yet, compliance obligations are active, and ignoring them can be costly.

Here’s what this phase means in practice:

Mandatory emissions reporting:
Exporters must now submit verified, plant-level emissions data for products covered under CBAM (such as steel, cement, aluminum, fertilizers, and more).
No data? Higher penalties:
If accurate emissions data is not provided, EU authorities apply default emission values, which are often significantly higher than actual emissions—automatically increasing future costs.
Compliance costs start immediately:
Even before CBAM certificates are fully priced, companies must invest in monitoring systems, third-party verification, audits, and reporting frameworks.

Why This Is a Big Deal for India and Other Developing Countries

For exporters in developing countries like India, this transition period is already proving disruptive and expensive.

Key challenges include:

Lack of emissions tracking infrastructure:
Many plants were never required to measure emissions at this level of detail before.
High verification costs:
Hiring accredited verifiers and upgrading systems adds financial pressure, especially for small and mid-sized exporters.
Reduced competitiveness:
EU buyers may prefer suppliers with cleaner, well-documented carbon profiles, pushing unprepared exporters out of the market.

Why Waiting Until 2026 Is a Mistake

A common misconception is that businesses can wait until CBAM is fully enforced in 2026. In reality:

Early non-compliance creates data gaps that raise future tax liabilities
Poor reporting now locks exporters into higher default emissions benchmarks later
Delayed action increases the risk of losing EU market access

January 1 matters because CBAM is no longer theoretical—it is operational. The reporting phase is shaping who will remain competitive in EU markets and who will struggle under rising compliance costs. For Indian exporters, early adaptation is no longer optional; it is essential for survival in a carbon-regulated global trade system.

4. India–EU Trade Ties and the Importance of Metal Exports

India–EU trade relations have grown steadily over the years, making the European Union one of India’s top trading partners. Among the many goods exchanged, metal exports play a strategic role in strengthening this partnership. From large industrial hubs to small manufacturing clusters, metals form the backbone of India’s export ecosystem to Europe.

Why the EU Matters to India’s Metal Sector

The EU is a high-value, quality-conscious market that demands consistent supply and global standards. For India, exporting metals to the EU means:

Access to stable and diversified demand
Better price realization compared to many other markets
Opportunities to move up the value chain

This makes the EU a critical destination for India’s metal producers.

India’s Key Metal Exports to the EU

India supplies a wide range of metal products to European countries, including:

Iron and steel products
Used extensively in construction, automobiles, machinery, and infrastructure projects across the EU.
Aluminium and aluminium articles
Essential for packaging, transport, renewable energy, and lightweight manufacturing.
Semi-finished metal goods
Such as slabs, billets, and sheets that support European downstream industries.

These exports are not limited to raw materials; they increasingly include processed and value-added metal products, improving India’s export profile.

Economic Importance of Metal Exports

Metal exports to the EU support multiple layers of the Indian economy:

Large integrated steel and aluminium plants
These facilities rely on export markets to maintain scale, efficiency, and global competitiveness.
Thousands of MSMEs
Small and medium enterprises supply components, finished goods, and specialized metal products, especially from industrial clusters.
Employment across allied sectors
Jobs are generated not only in manufacturing but also in mining, transportation, ports, warehousing, and logistics.

Together, this ecosystem supports millions of livelihoods across the country.

Economy-Wide Ripple Effects

Any disruption in India–EU metal trade—due to tariffs, regulatory changes, or demand shocks—can have far-reaching economic consequences, such as:

Reduced production and plant utilization
Pressure on MSME cash flows
Job losses in industrial and logistics sectors
Impact on foreign exchange earnings

India–EU trade ties are deeply interconnected, and metal exports are a cornerstone of this relationship. Ensuring stable, fair, and forward-looking trade policies is essential to protect industries, sustain employment, and strengthen India’s position in global metal markets. As India and the EU deepen economic cooperation, metals will continue to play a vital role in shaping shared growth.

5. Why Indian Metal Exports Are Vulnerable

Indian metal exports—especially steel, aluminium, and iron products—are entering a challenging phase in global trade. With climate-linked trade policies tightening worldwide, Indian exporters are increasingly exposed to structural weaknesses that were built over decades. This vulnerability is not accidental; it is the outcome of how and when India industrialized.

The three key reasons why Indian metal exports are vulnerable today.

1. Higher Carbon Intensity Increases Trade Risk

One of the biggest challenges for Indian metal exports is high carbon intensity.

Indian steel and aluminium production relies heavily on coal-based energy, unlike Europe, which has shifted towards cleaner energy sources.
As a result, Indian metals emit more CO₂ per tonne compared to global competitors.
Policies such as the EU’s Carbon Border Adjustment Mechanism (CBAM) penalize products with higher embedded emissions, directly increasing export costs.

This means Indian exporters are not just competing on price anymore—they are competing on carbon efficiency, an area where India currently lags.

2. Technology Gap Slows Decarbonization

The second disadvantage is a technology gap.

Many Indian metal plants use older blast furnace technologies that are energy-intensive.
Advanced solutions like green hydrogen, electric arc furnaces, and carbon capture are still limited due to high capital costs.
European and developed economies benefited from early access to cleaner technologies and strong policy support.

Because India’s industrial growth prioritized cost minimization over decarbonization, companies now face expensive retrofits instead of smooth transitions.

3. Data and Compliance Challenges Hurt Export Readiness

Global markets now demand verified emissions data, not estimates.

Indian exporters often lack robust measurement, reporting, and verification (MRV) systems.
Small and mid-sized exporters struggle with complex compliance frameworks and documentation.
Inconsistent data makes it harder to prove lower emissions—even when improvements are made.

This creates a credibility gap, putting Indian exporters at risk of penalties, delays, or rejection in regulated markets.

A Legacy Cost of Late Decarbonization

Unlike Europe, India industrialized during a period where economic survival and scale mattered more than sustainability. Decarbonization was not a global priority then. Today, however, Indian exporters face retroactive penalties for those historical development paths.

The Way Forward

To protect Indian metal exports, India must:

Accelerate clean energy adoption
Invest in low-carbon technologies
Strengthen emissions data systems
Support exporters through policy and finance

Without rapid adaptation, Indian metals risk losing competitiveness in a carbon-conscious global economy.

6. The 15–22% Price Cut Threat: What It Really Means

The European Union’s Carbon Border Adjustment Mechanism (CBAM) is no longer a distant policy debate—it is becoming a direct financial reality. According to the Global Trade Research Initiative (GTRI), “Every shipment of Indian steel and aluminium entering the EU will carry a carbon cost.” To stay competitive, exporters may be forced to cut prices by 15–22%, allowing EU importers to use that margin to pay CBAM-related taxes.

Below is what this price cut threat really means—and why it’s deeply concerning.

What Is Driving the 15–22% Price Cut?

CBAM places a carbon price on imports entering the EU, aligning them with the costs faced by European producers under the EU Emissions Trading System.

To absorb this added cost, Indian exporters may have to:

Lower export prices by 15–22%
Transfer the margin so EU buyers can offset CBAM taxes
Compete with EU producers already adjusted to carbon pricing

This effectively shifts the carbon burden from the importer to the exporter.

Why This Is Alarming for the Metal Industry

The impact is far more serious than a one-time pricing adjustment.

Key concerns include:

Already thin margins: Steel and aluminium exports operate on low profit margins. A 15–22% cut can wipe out profits entirely.
Direct hit to profitability: Unlike efficiency improvements, price cuts offer no long-term value—only losses.
Uneven impact: Large corporations may absorb short-term losses, but small and mid-sized exporters cannot.
Cash flow pressure: Reduced margins limit reinvestment in cleaner technologies, creating a vicious cycle.

A Threat to Long-Term Market Access

This is not just about pricing—it’s about survival in the EU market.

If Indian exporters:

Cannot cut prices sustainably, or
Fail to invest in low-carbon production fast enough

they risk being priced out of the EU altogether. Over time, buyers may shift permanently to suppliers with lower embedded emissions or domestic EU producers.

The Bigger Picture for Indian Exports

CBAM signals a structural shift in global trade:

Carbon efficiency is becoming a trade requirement, not a bonus
Price competitiveness alone is no longer enough
Export strategies must now factor in carbon costs

The 15–22% price cut threat is a warning sign. Without policy support, carbon transparency, and investment in greener production, Indian steel and aluminium exporters face shrinking profits—and potentially shrinking access to one of their most valuable markets. This challenge is long-term, strategic, and cannot be ignored.

7. Blast Furnace vs Electric Arc Furnace: A Structural Disadvantage

How Steel Is Made Matters

Production Route	Emissions Level	Used By
Blast Furnace–BOF	Highest	India (mostly)
Gas-based DRI	Medium	Limited use
Electric Arc Furnace (EAF)	Lowest	EU, US, UK

India relies heavily on blast furnaces, which:

Use coking coal
Emit significantly more CO₂

Meanwhile, the EU and US:

Use scrap-based electric arc furnaces
Have easier access to steel scrap
Are now restricting scrap exports

This creates a double advantage for developed countries under CBAM.

8. MSMEs at the Frontline of the CBAM Shock

India’s Micro, Small, and Medium Enterprises (MSMEs) are standing at the frontline of a major global trade disruption: the European Union’s Carbon Border Adjustment Mechanism (CBAM). While CBAM aims to reduce global carbon emissions, its immediate impact on Indian MSMEs could be severe, uneven, and deeply disruptive.

Why MSMEs Are Most at Risk

Unlike large corporations with advanced compliance systems, MSMEs operate with limited financial and technical capacity. CBAM places a carbon price on imports into the EU based on embedded emissions, and this is where MSMEs face structural disadvantages.

Key Challenges MSMEs Face Under CBAM

No Access to Plant-Level Emissions Data
Most MSMEs do not have systems to measure, monitor, or report carbon emissions at the plant level. Without this data, they cannot prove their actual emission intensity.
Dependence on Large Producers for Inputs
MSMEs often rely on upstream suppliers such as steel, aluminum, or cement manufacturers. These large producers frequently do not share verified carbon data, leaving MSMEs unable to calculate embedded emissions accurately.
High Cost of Third-Party Verification
CBAM requires emissions data to be verified by accredited third-party agencies. For MSMEs, the cost of verification can be prohibitively high, sometimes exceeding profit margins on EU-bound exports.

The Default Emissions Trap

When verified emissions data is missing or incomplete, the EU applies default emission values. These defaults are often set at the highest possible emission levels to prevent under-reporting.

Even low-emission MSMEs may be taxed as high polluters
Carbon taxes increase artificially, reducing price competitiveness
MSMEs lose contracts despite being efficient producers

Economic Impact on Indian MSMEs

The result is not just higher compliance costs—it is a serious threat to survival:

Shrinking profit margins
Loss of long-standing EU buyers
Reduced export volumes
Risk of permanent exclusion from EU markets

👉 Many MSMEs may exit the EU market entirely, not because they are carbon-intensive, but because they cannot afford to prove they are not.

Why This Matters

MSMEs form the backbone of India’s export economy, employment generation, and industrial growth. If CBAM compliance remains inaccessible, it could widen the gap between large exporters and small businesses, undermining inclusive growth.

The Way Forward

To protect MSMEs from the CBAM shock, coordinated action is critical:

Shared emissions databases
Affordable verification frameworks
Policy support and capacity building

Without urgent intervention, CBAM risks becoming not just a climate tool—but a trade barrier for MSMEs.

9. Is CBAM About Climate or Commerce?

The Carbon Border Adjustment Mechanism (CBAM) is often presented as a bold climate policy designed to reduce global carbon emissions. On the surface, it sounds simple and fair: if imports come from carbon-intensive production, they should pay a carbon price similar to domestic producers. However, many developing countries argue that CBAM is less about climate and more about commerce and protectionism.

Below is a clear, humanized, and SEO-optimized breakdown of why this debate matters.

🌍 What CBAM Claims to Do

CBAM aims to:

Prevent carbon leakage, where companies move production to countries with weaker climate rules
Create a level playing field for domestic industries
Encourage cleaner production globally

In theory, this aligns with climate goals. But the real-world impact tells a different story.

📉 What the Evidence Shows

A UNCTAD study (2021) revealed some concerning facts:

CBAM would reduce global CO₂ emissions by only 0.1%
Exports from developing countries would decline significantly
Least developed countries would face disproportionate economic harm

This raises a critical question:
If the climate benefit is so small, why is the policy so disruptive?

🏭 The Real Driver: Industrial Competitiveness

The answer lies in industrial protection and economic strategy.

CBAM helps developed economies by:

Protecting domestic industries from cheaper imports
Shifting the cost burden onto exporters from the Global South
Reinforcing existing trade advantages under the banner of climate action

For industries like steel, cement, aluminum, and fertilizers, CBAM acts as a trade barrier, not just an environmental tool.

⚖️ Why Developing Countries Call It Protectionism

Developing nations argue that CBAM:

Ignores historical emissions responsibility
Penalizes countries with limited access to green technology
Violates the principle of “common but differentiated responsibilities”
Acts like a carbon tariff disguised as climate policy

Instead of helping them transition, CBAM risks slowing industrial growth and exports.

🌱 Climate Policy or Trade Weapon?

If the primary goal were climate action, alternatives could include:

Technology transfer
Climate finance
Capacity-building for cleaner production

Without these supports, CBAM appears to prioritize economic self-interest over global climate justice.

CBAM may wear the label of climate policy, but its largest impact is commercial. With minimal emission reductions and major trade disruptions, it reflects a strategy focused more on protecting industries than protecting the planet.

For global climate action to be truly effective, it must be inclusive, fair, and development-sensitive, not just competitive.

10. WTO Rules and the CBDR Debate

The international debate around climate policies and trade regulations has intensified with the introduction of the Carbon Border Adjustment Mechanism (CBAM) by the European Union. While CBAM aims to reduce carbon leakage and promote greener production, countries like India have raised concerns that it violates the principle of Common But Differentiated Responsibilities (CBDR).

What is CBDR?

CBDR is a foundational principle in global climate governance. It acknowledges that:

Developed countries are historically responsible for most greenhouse gas emissions. Industrialized nations have contributed the majority of global emissions over the past century.
Developing countries require policy space to grow. Emerging economies must balance economic growth with environmental commitments, without facing the same stringent measures as advanced economies.

CBAM vs. CBDR

The key issue is that CBAM treats unequal economies as equal polluters, ignoring their distinct development stages and historical responsibilities. For instance:

Countries with lower historical emissions are charged carbon tariffs on their exports to the EU.
This approach does not account for differing capacities to transition to low-carbon technologies.
It may limit the growth prospects of developing economies by increasing production costs for goods exported to Europe.

Implications under WTO Rules

India and other developing countries argue that CBAM raises serious questions under World Trade Organization (WTO) trade law:

Discrimination concerns: Treating all exporters equally, regardless of development status, could be seen as discriminatory under WTO rules.
Trade restrictions disguised as environmental measures: CBAM may act as a barrier to trade, which the WTO generally discourages unless justified under environmental exceptions.
Conflict with CBDR obligations: By not differentiating responsibilities, CBAM contradicts the spirit of international climate agreements like the UNFCCC, which recognize historical emissions and developmental needs.

The CBDR debate highlights the tension between environmental goals and equitable trade practices. While CBAM represents a step toward global climate accountability, it also risks penalizing developing nations for circumstances largely beyond their control. Addressing these concerns will require balancing climate action with fairness under WTO rules, ensuring that developing economies are not unfairly burdened while the world moves toward a low-carbon future.

11. Data Snapshot: Emissions, Trade Exposure, and Cost Impact

Key Indicators (Illustrative)

India’s steel emissions intensity: ~2.5 tCO₂/ton
EU average steel emissions: ~1.3 tCO₂/ton
Estimated CBAM cost per ton of steel: €80–100
Potential export revenue loss: $5–7 billion annually

India’s steel industry is at a critical crossroads, facing increasing scrutiny over carbon emissions and international trade costs. Currently, India’s steel emissions intensity stands at approximately 2.5 tCO₂ per ton, nearly double the EU average of 1.3 tCO₂ per ton. This gap highlights the growing pressure on Indian steelmakers to adopt cleaner technologies and align with global climate standards.

The Carbon Border Adjustment Mechanism (CBAM) in the EU introduces additional financial implications for steel exports. Preliminary estimates suggest the CBAM could cost Indian producers €80–100 per ton of steel, directly impacting competitiveness in key export markets. This regulatory shift could translate into a potential annual export revenue loss of $5–7 billion, signaling a significant economic challenge for the sector.

These figures emphasize the urgent need for sustainable practices and strategic investment in low-carbon steel production. Indian steelmakers that proactively reduce emissions can not only mitigate CBAM costs but also enhance their global market positioning. By monitoring key indicators like emissions intensity and trade exposure, stakeholders can better navigate evolving international regulations while securing long-term growth.

Understanding these dynamics is essential for policymakers, industry leaders, and investors aiming to balance economic performance with environmental responsibility.

12. How Other Countries Are Positioned

EU, US, UK: Benefit due to cleaner technology
China: Rapidly investing in compliance and reporting systems
Russia: Has challenged CBAM at the WTO

Global steel markets are increasingly shaped by carbon regulations, and countries are moving at different speeds to adapt. The EU, US, and UK hold a competitive advantage thanks to cleaner steelmaking technologies, which lower emissions and reduce costs under frameworks like the EU’s Carbon Border Adjustment Mechanism (CBAM). These nations are better positioned to maintain market access without facing heavy compliance costs.

China is also making rapid strides, investing heavily in carbon compliance, emissions reporting, and energy-efficient production. This proactive approach strengthens China’s export resilience, ensuring its steel remains competitive in regulated markets. Meanwhile, Russia has taken a different route, challenging CBAM at the WTO, but this legal strategy carries uncertainties and does not address the underlying emissions gap.

For India, the implications are stark. If Indian steelmakers fail to accelerate decarbonization and compliance efforts, the country risks losing market share permanently in key global markets. Falling behind peers could result in higher CBAM costs, reduced exports, and long-term competitive disadvantages.

Strategic investment in low-carbon steel technology, robust reporting systems, and global alignment is now crucial. Understanding how competitors are positioned can help India anticipate market shifts, safeguard revenue, and secure its place in the evolving low-carbon steel landscape.

13. What Can India Do? Policy and Industry Responses

India’s steel sector faces growing pressure from global carbon regulations, particularly the EU’s Carbon Border Adjustment Mechanism (CBAM). To remain competitive in international markets, a combination of short-term and long-term strategies is essential.

Short-Term Measures

Mutual Recognition Agreements (MRAs) for Carbon Certification
India can negotiate MRAs with trading partners to simplify carbon verification and reduce export delays. Such agreements would allow Indian steelmakers to certify emissions in line with international standards, lowering compliance risks and maintaining market access.
Government Support for Compliance Costs
To cushion the impact of CBAM and other carbon-related tariffs, targeted government support—such as subsidies or tax incentives—can help manufacturers manage immediate compliance costs. This is particularly important for micro, small, and medium enterprises (MSMEs), which form a large portion of India’s steel industry but may lack resources to adapt quickly.
MSME-Specific Carve-Outs in Trade Talks
Including MSME considerations in bilateral and multilateral trade discussions can protect smaller producers from disproportionate penalties while they transition toward low-carbon production.

Long-Term Strategy

Accelerate Shift to Electric Arc Furnaces (EAFs)
Transitioning from traditional blast furnaces to electric arc furnaces can significantly reduce carbon emissions. EAFs use scrap steel rather than raw iron ore, lowering the sector’s carbon footprint and aligning India with global low-emission standards.
Develop Domestic Steel Scrap Markets
Strengthening scrap collection and recycling infrastructure will ensure a steady supply for EAFs, reduce dependency on raw materials, and promote circular economy principles.
Invest in Green Hydrogen and Renewable-Powered Steel
Long-term decarbonization will require innovation in green hydrogen and renewable energy-powered steelmaking. Strategic investment in R&D and pilot projects can position India as a global leader in sustainable steel production.

As economist Arpita Mukherjee (ICRIER) notes, “If competitors comply faster, others will be left behind.” This underscores the urgency for India to act decisively. By combining immediate policy support with long-term technological investments, the country can safeguard its steel exports, reduce CBAM exposure, and secure a competitive edge in the evolving global steel market.

Proactive measures today will not only protect India’s steel export revenue but also create a pathway for sustainable industrial growth, aligning economic priorities with global climate commitments.

14. Long-Term Implications for India’s Industrial Strategy

The introduction of the EU’s Carbon Border Adjustment Mechanism (CBAM) is more than a trade measure—it signals a transformative shift in global industrial dynamics. For India, the long-term implications are profound, affecting industrial strategy, trade competitiveness, and climate policy alignment.

Key Takeaways from CBAM

Carbon Efficiency Equals Trade Competitiveness
In the near future, international markets will reward industries that minimize carbon emissions. Steel, cement, and aluminum—major export sectors for India—will face higher costs if emissions are not controlled. Carbon-efficient producers gain a competitive advantage, while high-emission industries risk losing market share.
Industrial and Climate Policy Are Converging
CBAM demonstrates that economic and environmental policies are no longer separate domains. Industrial strategies must now integrate net-zero targets, emissions reduction technologies, and sustainable manufacturing practices to remain globally relevant.
Late Movers Face Exclusion, Not Adjustment
Unlike past trade shifts, where slower adopters could negotiate temporary relief, carbon regulations are designed to enforce compliance. Indian manufacturers that delay adaptation may find themselves excluded from key export markets, facing penalties rather than gradual adjustment periods.

Strategic Alignment for India

To secure its industrial future, India must synchronize three critical priorities:

Make in India: Strengthening domestic manufacturing while promoting green technologies can reduce dependency on imports and enhance global competitiveness.
Net-Zero Targets: Aligning industrial expansion with carbon-neutral pathways ensures that growth does not come at the cost of regulatory penalties.
Export Competitiveness: Investments in low-carbon technologies, electric arc furnaces, green hydrogen, and sustainable supply chains can protect India’s share in regulated markets.

The Risk of Inaction

Failure to adapt carries the risk of deindustrialization through regulation. High-emission sectors could face declining exports, rising compliance costs, and erosion of global market presence. Without proactive policy and industrial reform, India may struggle to maintain manufacturing leadership and long-term economic growth.

By anticipating global carbon trends and integrating climate-conscious practices into industrial policy, India can transform challenges into opportunities. Aligning trade competitiveness, net-zero goals, and domestic industrial policy will ensure India remains a key player in the evolving low-carbon global economy.

15. Conclusion: Carbon Tax or Carbon Protectionism?

CBAM may be framed as a climate tool, but its economic consequences are profound.

For India:

The threat is immediate
The adjustment is costly
The stakes are strategic

Unless global climate policy becomes fair, inclusive, and supportive, mechanisms like CBAM risk turning climate action into a new trade barrier, widening the gap between rich and poor nations.

Visuals to clearify-

CBAM Impact on India’s Metal Exports – Visual Data

Carbon Emissions Intensity of Steel Production (tCO₂ per ton)

Insight: India’s blast-furnace-based steel emits almost double the carbon compared to EU electric arc furnace steel, increasing CBAM liability.

Estimated CBAM Cost Impact on Indian Exports to the EU (€ per ton)

Insight: Steel and aluminium face the highest CBAM-related costs, eroding price competitiveness.

Export Price Reduction Required to Absorb CBAM (%)

Insight: Indian exporters may need to cut prices by up to 22% to offset CBAM taxes.

EU Share in India’s Metal Exports (%)

Insight: Over a quarter of India’s metal exports are destined for the EU, making CBAM a major trade risk.

Steel Production Routes and Carbon Emissions Comparison

Production Route	Major Users	Emissions (tCO₂/ton)
Blast Furnace – BOF	India, China	2.3 – 2.7
Gas-based DRI	India (Limited), Middle East	1.6 – 1.9
Electric Arc Furnace (EAF)	EU, US, UK	0.9 – 1.3

Data Sources: World Steel Association, International Energy Agency (IEA), UNCTAD, Global Trade Research Initiative (GTRI), EU ETS benchmarks.

16. Frequently Asked Questions (FAQ)

❓ What is CBAM?

CBAM is the EU’s carbon border tax on imports of carbon-intensive goods.

❓ Why does CBAM affect India more?

India uses carbon-intensive production methods and lacks widespread emissions certification.

❓ Which Indian sectors are most affected?

Steel, aluminium, iron, cement, fertilisers, and chemicals.

❓ How much could prices fall?

Experts estimate a 15–22% price cut may be required.

❓ Can CBAM be challenged?

Yes, disputes have been raised at the WTO, but outcomes remain uncertain.

17. Sources and References

Global Trade Research Initiative (GTRI) Reports
UNCTAD Trade and Environment Review
Indian Council for Research on International Economic Relations (ICRIER)
European Commission CBAM Framework
Statements by India’s Finance Minister, Nirmala Sitharaman