What Happened
- India's steel industry — the world's second-largest crude steel producer — is actively targeting new export markets in the Middle East and Southeast Asia to offset projected losses from the European Union's Carbon Border Adjustment Mechanism (CBAM), which entered its definitive phase from January 1, 2026.
- Nearly two-thirds of India's steel exports (by value) have historically gone to Europe; with CBAM now levying carbon costs on steel imports based on their embedded emissions intensity, Indian producers face a cost disadvantage versus European producers covered by the EU Emissions Trading System (ETS).
- The Global Trade Research Initiative (GTRI) estimates Indian steel exporters may need to cut prices by 15-22% to absorb the CBAM carbon cost burden — making EU markets increasingly unviable without green steelmaking transitions.
- India is the world's second-largest crude steel producer (approximately 144 million tonnes per annum in FY24) and has ambitious expansion targets; the loss of European markets threatens to create oversupply pressures domestically if not offset by new export destinations.
- Steel exports to Europe had already declined 24.4% in FY25 in anticipation of CBAM implementation.
Static Topic Bridges
EU Carbon Border Adjustment Mechanism (CBAM): Mechanism and Implications
CBAM is one of the most consequential trade-environment policy instruments of the decade, directly affecting India as a major exporter of carbon-intensive goods to the EU. It entered its transitional phase in October 2023 and full definitive implementation from January 1, 2026.
- CBAM levies a carbon cost on imports of specific goods — cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen — equivalent to the cost these goods would have faced under the EU Emissions Trading System (EU ETS) if produced within the EU.
- The EU ETS carbon price (which CBAM mirrors) has ranged between €50-100 per tonne CO₂ in recent years; at this level, Indian blast furnace steel faces a CBAM charge estimated at €269.78 per tonne of hot-rolled coil (HRC) under default emission values.
- India is expected to bear approximately 18% of total global CBAM costs — nearly double its share of EU import value — because India relies predominantly on the more carbon-intensive blast furnace-basic oxygen furnace (BF-BOF) steelmaking route (approximately 57% of production) rather than electric arc furnace (EAF) scrap-based routes.
- MSMEs in India face particular vulnerability: without plant-level verified emissions data, EU authorities apply default emission values, which are typically higher than actual emissions for modern plants.
Connection to this news: CBAM is a textbook example of a "carbon border tax" that internalises externalities in trade — a mechanism increasingly discussed in climate policy circles. Its trade-diversion effect (pushing Indian steel toward non-EU markets) is what this article specifically covers.
India's Steel Industry: Structure and Competitiveness
India's steel sector is central to its industrial development strategy and faces a structural dilemma: it produces competitively priced steel using relatively carbon-intensive methods that are now disadvantaged in premium export markets.
- India is the world's second-largest crude steel producer (after China) with ~144 million tonnes per annum (MTPA) in FY24; target is 300 MTPA by 2030-31 under the National Steel Policy 2017.
- India's steelmaking mix: ~57% blast furnace-BOF (coal-based, higher emissions ~2.5-3.5 t CO₂/t steel) + ~43% electric arc furnace/induction furnace (lower emissions ~0.5-0.8 t CO₂/t steel on grid power).
- Key steel companies: Steel Authority of India (SAIL — public sector), Tata Steel, JSW Steel, AMNS India (ArcelorMittal), Jindal Steel and Power.
- National Steel Policy 2017 targets: 300 MTPA capacity, 10 kg per capita steel consumption to 160 kg (from ~80 kg currently), and significant export presence.
Connection to this news: The scale-up to 300 MTPA will produce surpluses requiring export markets; if EU markets close due to CBAM, Middle Eastern and Southeast Asian markets (which lack carbon pricing requirements) become strategic necessities.
Trade Diversion and India's Market Diversification Strategy
CBAM's design creates strong incentives for trade diversion — redirecting high-carbon goods from the EU to non-EU markets that do not apply equivalent carbon pricing. This is a key economic and geopolitical consequence flagged by developing countries in WTO and UNFCCC forums.
- India has challenged CBAM as a violation of WTO principles, specifically the Most Favoured Nation (MFN) and non-discrimination principles (GATT Article I), and the Principle of Common But Differentiated Responsibilities (CBDR) under the UNFCCC — the latter holding that developed countries should bear a larger burden of climate action.
- The EU argues CBAM is WTO-compatible because it applies equally to all non-ETS-covered imports (not discriminatory by country) and is designed to prevent "carbon leakage" (shifting production to less-regulated regions).
- Alternative export markets being targeted: UAE, Saudi Arabia, Qatar (Gulf infrastructure spending), Vietnam, Indonesia, Bangladesh (manufacturing growth), and African markets (infrastructure development).
- Long-term solution: Indian steel producers must shift toward green steel (hydrogen-based DRI + EAF route) to regain EU market access — the transition cost is substantial and requires both capital and technology access.
Connection to this news: India's export diversification to Middle East and Asia is a short-to-medium term market displacement response; the long-term solution is green steel technology adoption — making this article a bridge between trade policy, industrial policy, and climate transition.
Key Facts & Data
- India: World's second-largest crude steel producer; ~144 MTPA in FY24; target 300 MTPA by 2030-31.
- EU CBAM: Definitive implementation from January 1, 2026; transitional phase from October 2023.
- Sectors covered: Cement, iron and steel, aluminium, fertilisers, electricity, hydrogen.
- CBAM carbon cost for Indian HRC (hot-rolled coil): ~€269.78/tonne under default emissions values.
- India's projected CBAM cost share: ~18% of global CBAM costs (nearly double its EU import market share).
- Indian steel exports to EU: ~two-thirds of export volume historically; already down 24.4% in FY25.
- Estimated price reduction needed to absorb CBAM: 15-22% (GTRI estimate).
- India's steelmaking mix: ~57% BF-BOF (coal-based) + ~43% EAF/IF.
- BF-BOF emissions: ~2.5-3.5 t CO₂/t steel; EAF: ~0.5-0.8 t CO₂/t steel on grid power; green hydrogen DRI-EAF: ~0.3-0.5 t CO₂/t steel.
- WTO challenge basis: GATT MFN (Article I) + CBDR principle under UNFCCC.
- India's CBAM-linked steel market diversification targets: Gulf (UAE, Saudi, Qatar), Vietnam, Indonesia, Bangladesh, Africa.