What Happened
- The Global Trade Research Initiative (GTRI) assessed that the EU's proposed CBAM expansion to 180 downstream steel- and aluminium-intensive products could sharply increase carbon tax costs for Indian goods exported to Europe.
- Steel and aluminium exporters from India to the EU already face CBAM since January 1, 2026; the proposed expansion compounds this exposure by covering finished goods made from these materials.
- GTRI estimates that Indian steel exporters may need to reduce prices by 15–22% to absorb CBAM-related carbon costs, significantly squeezing profit margins.
- At current EU ETS prices (approximately €79 per tonne of CO₂), the carbon cost adds approximately €55–80 per tonne of steel exported.
- MSMEs (Micro, Small, and Medium Enterprises) in India's steel and aluminium downstream sectors face the heaviest compliance and financial burden.
- India, along with China and South Africa, has raised WTO-compatibility concerns about CBAM.
Static Topic Bridges
EU Emissions Trading System (EU ETS) and Carbon Pricing
The EU ETS (European Union Emissions Trading System), launched in 2005, is the world's first and largest carbon market. It operates on a "cap and trade" principle: the EU sets a total cap on greenhouse gas emissions from covered sectors (power, heavy industry, aviation); companies receive or buy emission allowances; those that reduce emissions can sell surplus allowances; those that emit more must buy additional ones. The carbon price — determined by supply and demand for allowances — was approximately €79–80 per tonne of CO₂ in late 2024 and into 2025. CBAM links the carbon price paid by importers to this EU ETS price, ensuring imported goods face equivalent carbon costs as EU-produced goods.
- EU ETS launched: January 2005.
- Sectors covered: power generation, heavy industry (steel, cement, aluminium, oil refining), aviation within EU.
- EU ETS Phase 4 (2021–2030): annual cap reduction of 4.3% per year (increased from 2.2% previously).
- EU ETS carbon price range: €60–80 per tonne of CO₂ (approximate current levels).
- CBAM certificate price = EU ETS weekly average price; importers surrender certificates annually.
- EU ETS covers approximately 40% of the EU's total greenhouse gas emissions.
Connection to this news: Indian exporters have no domestic equivalent of the EU ETS. Since India does not charge carbon costs comparable to EU ETS prices on its steel and aluminium production, Indian goods face the full CBAM differential — making them relatively more expensive in EU markets than before CBAM's introduction.
India–EU Trade Relationship and CBAM's Trade Dimensions
The EU is India's largest trading partner bloc, with bilateral merchandise trade exceeding €100 billion annually. India's key exports to the EU include pharmaceuticals, engineering goods, textiles, gems and jewellery, chemicals, and iron and steel. Iron and steel alone account for approximately 90% of India's current CBAM-exposed exports to the EU, making Indian steel manufacturers the most directly affected. India and the EU have been negotiating a Free Trade Agreement (BTIA — Broad-Based Trade and Investment Agreement) since 2007, with renewed talks since 2022.
- India–EU bilateral trade (merchandise): over €100 billion annually.
- India's top exports to EU: pharmaceuticals, textiles, engineering goods, iron and steel, gems and jewellery.
- India's CBAM-exposed exports (current scope): iron and steel (~$8.4 billion/year) accounts for ~90% of India's CBAM exposure.
- India–EU BTIA negotiations: started 2007, stalled, relaunched 2022; still ongoing as of 2026.
- India has raised CBAM concerns at WTO through a formal communication arguing violation of Article I (MFN) and Article III (National Treatment) of GATT 1994.
- EU's CBAM is also viewed as inconsistent with the "common but differentiated responsibilities and respective capabilities" (CBDR-RC) principle of the UNFCCC.
Connection to this news: The CBAM expansion to 180 downstream products transforms CBAM from a sectoral concern (iron and steel) into a broad manufacturing-sector challenge for India — affecting exporters of machinery, appliances, and fabricated metal products, expanding India's CBAM exposure well beyond the current steel sector.
Carbon Credit Trading Scheme (CCTS) — India's Domestic Carbon Market Response
India launched its Carbon Credit Trading Scheme (CCTS) framework under the Energy Conservation (Amendment) Act, 2022, establishing a domestic carbon market. The CCTS is being developed in two tracks: a Compliance Mechanism (mandatory carbon reduction targets for obligated entities) and an Offset Mechanism (voluntary carbon credits). A domestic carbon price — once established — could reduce India's CBAM liability by providing evidence that Indian producers already pay a comparable carbon cost domestically. This is a key strategic reason why India needs to accelerate CCTS implementation.
- Energy Conservation (Amendment) Act, 2022: provides legal basis for India's carbon market.
- Carbon Credit Trading Scheme (CCTS): notified in 2023; Bureau of Energy Efficiency (BEE) under Ministry of Power is the nodal agency.
- CCTS will initially cover eight energy-intensive sectors: iron and steel, aluminium, cement, fertilisers, textiles, pulp and paper, petroleum refining, and petrochemicals.
- Under CBAM, a domestic carbon price equal to the EU ETS price exempts the exporter from paying the CBAM differential — incentivising India to establish an equivalent system.
- India's Perform, Achieve and Trade (PAT) scheme — a precursor energy efficiency trading mechanism under the National Mission for Enhanced Energy Efficiency — has been running since 2012.
Connection to this news: Accelerating CCTS development is India's most direct policy response to CBAM. If Indian steel and aluminium producers can demonstrate they already face carbon costs under CCTS comparable to EU ETS, they can claim a credit against their CBAM liability — reducing the trade cost burden.
Key Facts & Data
- GTRI estimate: Indian steel exporters may need to cut prices by 15–22% to absorb CBAM carbon costs.
- EU ETS price: approximately €79.68 per tonne of CO₂ (carbon cost adds ~€55–80 per tonne of steel).
- India's CBAM-exposed exports to EU: iron and steel at approximately $8.4 billion annually — ~90% of current CBAM exposure.
- CBAM definitive phase: January 1, 2026; first certificate surrender due May 2027 for 2026 imports.
- Proposed expansion to 180 downstream products: effective January 1, 2028.
- India's CCTS framework launched under Energy Conservation (Amendment) Act, 2022.
- EU ETS launched: 2005; covers approximately 40% of EU greenhouse gas emissions.
- India–EU bilateral trade (merchandise): over €100 billion/year.
- India has raised WTO compatibility concerns about CBAM alongside China and South Africa.
- India's Paris Agreement ratification: October 2, 2016; NDC target: 45% emissions intensity reduction by 2030 vs 2005.
- CBDR-RC principle (common but differentiated responsibilities): core UNFCCC principle India cites in opposing CBAM.