Indian steel and aluminium exports to the European Union are poised to encounter significant hurdles starting January 1, 2026, due to the EU’s implementation of its Carbon Border Adjustment Mechanism (CBAM). Transitioning from a reporting phase to a payment-linked stage, this regulation will impose carbon-related costs on EU-based importers. A report by the Global Trade Research Initiative (GTRI) indicates that Indian exporters might need to revise their pricing strategies to maintain competitiveness, possibly resulting in price reductions of 15-22%. The introduction of this mechanism could transform trade dynamics, especially for exporters dependent on high-emission production practices.
Impact of CBAM on Indian Exporters
With the rollout of the CBAM, EU importers will need to factor in carbon costs related to imported steel and aluminium. Although the levy will be borne by the importers, the financial impact will eventually affect Indian exporters. The GTRI report notes that exporters may encounter lower realized prices, more stringent contract terms, and stricter supplier selection criteria as a consequence of the new regulations. The first shipments in 2026 will reveal the CBAM’s influence on pricing strategies, even though the formal certificate surrender will not take place until 2027. Consequently, EU buyers will start incorporating embedded carbon costs into their procurement strategies, impacting negotiations and supplier standings.
Challenges for High-Emission Production Methods
Exporters using high-emission production processes, particularly in steel manufacturing, are likely to face the greatest decline in competitiveness. The report emphasizes that processes such as blast furnace-basic oxygen furnace methods will be especially susceptible. In the aluminium sector, the carbon impact will largely hinge on the intensity of electricity consumed and its source. The CBAM mandates that exporters evaluate embedded emissions for each production site, considering both direct fuel combustion and electricity use. This plant-specific emissions accounting is vital, as corporate averages or sustainability reports will no longer be accepted under the new framework.
Verification and Compliance Requirements
Starting in 2026, independent verification of emissions data will be essential for exporters. Only verifiers recognized by the EU or compliant with ISO 14065 standards will be permitted. The GTRI report warns that exporters lacking verified plant-level emissions data may be assigned higher default emission values by EU authorities, leading to inflated carbon costs and complicating the competitive environment for Indian exporters. Micro, small, and medium enterprises (MSMEs) are particularly vulnerable, as they may struggle with the elevated compliance and verification costs linked to the CBAM.
Concerns for Micro, Small, and Medium Enterprises
A significant concern highlighted in the GTRI report is the opacity in emissions data sharing between large producers and MSMEs that procure steel or aluminium from them. Ajay Srivastava, founder of GTRI, stressed that without access to verified data, MSMEs could incur disproportionately high carbon costs from the application of default emission values. This disparity in data sharing could potentially exclude smaller enterprises from EU supply chains unless corrective actions are taken. The report suggests that the CBAM signifies a notable shift in global trade dynamics, where carbon intensity will increasingly influence competitiveness in regulated markets like the EU. Low-emission producers may gain an advantage, while those unable to adhere to the new data and verification standards risk losing access to this vital market.
Digihunt is not a financial advisor and this is not investment advice.