India’s steel and aluminium exports to the European Union (EU) are expected to face significant pressure as the bloc’s carbon tax on certain high-emission goods comes into force, the Global Trade Research Initiative (GTRI) said on Wednesday.
The 27-nation EU is imposing the Carbon Border Adjustment Mechanism (CBAM) on imports of carbon-intensive products, including steel and aluminium, to align import prices with its domestic carbon costs. While the reporting phase is already underway, the mechanism will move to the payment phase from January 1, 2026.
According to GTRI, Indian exporters may be forced to cut prices by 15–22 per cent to offset the additional cost EU importers will incur in purchasing CBAM certificates. Although the tax will be paid by EU-based importers registered as authorised CBAM declarants, the burden is likely to be passed back to Indian exporters through lower import prices.
“From January 2026, every shipment of Indian steel and aluminium entering the EU will carry a carbon cost as CBAM shifts from reporting to actual payment,” said GTRI Founder Ajay Srivastava.
In the steel sector, carbon emissions vary significantly by production route. Emissions are highest in Blast Furnace–Basic Oxygen Furnace (BF–BOF) operations, lower in gas-based Direct Reduced Iron (DRI) processes, and lowest in scrap-based Electric Arc Furnace (EAF) routes. In aluminium, the carbon footprint largely depends on the source and intensity of electricity used, with coal-based power substantially increasing CBAM-related costs.
GTRI cautioned that CBAM’s complex data, reporting and verification requirements will sharply raise compliance costs, potentially forcing smaller exporters out of the EU market. “CBAM is not a corporate sustainability exercise; it is a plant-level emissions accounting regime,” Srivastava said, stressing that emissions must be calculated for each manufacturing installation.
Exporters will be required to track fuel usage, electricity consumption, production volumes and emission factors on a quarterly basis, with records aligned to EU methodologies and subject to audit. Failure to provide accurate data could result in the EU applying default emission values, which GTRI says are intentionally conservative and often 30–80 per cent higher than actual emissions.
From 2026 onwards, independent verification of emissions data will also become mandatory. Only EU-recognised or ISO 14065-compliant verifiers will be accepted, and the process will closely resemble a financial audit involving document reviews, emissions validation and formal certification.
Despite the challenges, GTRI noted that CBAM could offer a competitive advantage to low-emission producers using cleaner energy sources. “Verified low emissions can protect margins and help win market share as higher-emission suppliers lose ground,” Srivastava said.
He advised Indian exporters to develop an internal “CBAM shadow price” by calculating embedded emissions per tonne and applying the prevailing EU carbon price, enabling better pricing and investment decisions.
India’s steel and aluminium exports to the EU have already shown signs of stress, declining 24.4 per cent from USD 7.71 billion in FY24 to USD 5.82 billion in FY25. The carbon tax has also emerged as a key issue in the ongoing negotiations for the proposed India–EU trade agreement.
