The European Union on January 1 began enforcing the world’s first carbon tax under its Carbon Border Adjustment Mechanism (CBAM), sparking concerns in developing countries, including India. The levy targets carbon-intensive imports from sectors such as steel, aluminium, cement, chemicals, and fertilisers, with similar measures expected in the UK this year.
India, a major exporter of steel and aluminium to the EU, faces significant impact. Exporters warn that CBAM compliance could force them to cut prices by 15–22% to offset the carbon costs. MSMEs are expected to bear the heaviest burden, as many lack verified emissions data required by the EU.
To adapt, Indian manufacturers may need to switch from blast furnaces to cleaner arc furnaces or seek carve-outs in ongoing India-EU trade talks. Experts have also suggested mutual recognition agreements to certify emissions locally.
Critics argue that CBAM is more about protecting European commercial interests than climate action. UNCTAD estimates the mechanism will cut global CO2 emissions by only 0.1%, while significantly hindering developing-country exports. Finance Minister Nirmala Sitharaman has called the move “unilateral and arbitrary,” emphasizing India’s objections.
