What Happened
- India's federal commerce secretary confirmed the government will provide support to steel exporters adversely affected by the European Union's Carbon Border Adjustment Mechanism (CBAM), which came into force on 1 January 2026.
- The India-EU trade deal recently signed slashed tariffs on several sectors but left the CBAM intact, meaning Indian steel and aluminium exports to the EU will face carbon-linked levies.
- India's steel sector is particularly exposed because of its higher carbon intensity — approximately 2.5 tonnes of CO2 per tonne of steel produced, compared to the EU benchmark of 1.8 tonnes.
- The Global Trade Research Initiative (GTRI) estimates that Indian exporters may need to absorb a 15-22% cost increase or cut prices to remain competitive in EU markets.
Static Topic Bridges
Carbon Border Adjustment Mechanism (CBAM)
The CBAM is the EU's mechanism to prevent "carbon leakage" — the phenomenon where EU industries shift production to countries with weaker climate regulations. Under CBAM, EU importers must purchase certificates corresponding to the embedded CO2 emissions in imported goods, priced at rates aligned with the EU Emissions Trading System (EU ETS), currently around EUR 70-100 per tonne of CO2. The mechanism applies to six carbon-intensive sectors: cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen.
- Transitional reporting phase: October 2023 to December 2025
- Full compliance phase: 1 January 2026 (importers must buy CBAM certificates)
- Pricing linked to EU ETS allowance prices
- CBAM allows deduction for any carbon price already paid in the country of origin
- India does not currently have a carbon pricing mechanism, putting its exporters at a disadvantage
Connection to this news: India's lack of a domestic carbon pricing system means its exporters receive no credit against CBAM obligations, amplifying the cost burden. The government's commitment to support steel exporters signals potential policy responses — either a domestic carbon market, export subsidies, or decarbonisation incentives.
India-EU Trade Relations and Free Trade Agreement
India and the EU have been negotiating a Broad-based Trade and Investment Agreement (BTIA) since 2007. The recent deal represents a breakthrough in bilateral trade ties, with tariff reductions across multiple sectors. However, the exclusion of CBAM from trade negotiations reflects the EU's position that CBAM is a climate measure, not a trade barrier — a classification that India and other developing nations dispute.
- India-EU bilateral trade: approximately USD 120 billion annually
- India's steel exports to the EU: significant share of total steel exports
- EU is India's 2nd largest trading partner after the US
- India has argued at WTO that CBAM violates the principle of Common but Differentiated Responsibilities (CBDR)
Connection to this news: The India-EU trade deal deliberately carved out CBAM, indicating the EU's firm stance on maintaining the carbon levy. India must now develop a parallel strategy to address CBAM while leveraging tariff benefits in other sectors.
India's Steel Sector and Decarbonisation Challenge
India is the world's second-largest steel producer, with production capacity exceeding 160 million tonnes per annum. The National Steel Policy 2017 targets 300 million tonnes capacity by 2030. However, approximately 55% of India's steel production relies on coal-based blast furnace technology, making it highly carbon-intensive compared to electric arc furnace (EAF) routes prevalent in developed countries.
- India's steel production: approximately 144 million tonnes (2024-25)
- National Steel Policy 2017 target: 300 MTPA capacity by 2030
- India's emission intensity for steel: ~2.5 tonnes CO2/tonne of steel (global average: ~1.9)
- Green steel initiatives: National Green Hydrogen Mission (2023) aims to reduce industrial emissions
Connection to this news: The government's support for steel exporters must balance immediate trade competitiveness with long-term decarbonisation, as reducing emission intensity is the only sustainable response to CBAM.
Key Facts & Data
- CBAM entered full compliance phase on 1 January 2026
- EU ETS carbon price: approximately EUR 70-100 per tonne of CO2
- India's steel CO2 intensity: ~2.5 tonnes CO2 per tonne of steel vs EU benchmark of 1.8 tonnes
- GTRI estimate: Indian exporters may face 15-22% cost increase under CBAM
- CBAM covers: cement, iron and steel, aluminium, fertilisers, electricity, hydrogen
- India-EU BTIA negotiations ongoing since 2007