What is CBAM and why it may dominate India-EU FTA agenda? Explained | India News

European Commission President Ursula von der Leyen and European Council President António Luís Santos da Costa were the chief guests at India’s 77th Republic Day celebrations. Apart from its ceremonial importance, the visit also highlights the importance of January 27, when the 16th India-EU Summit is scheduled to take place. The summit is expected to be a major breakthrough in bilateral relations as India and the European Union seek to advance and potentially conclude negotiations on the long-pending India-EU Free Trade Agreement (FTA).


According to various media reports, India and the European Union are set to announce the completion of the much-awaited negotiations on a free trade agreement on Tuesday.

One of the most critical issues expected to dominate the agenda of the upcoming FTA negotiations is the Carbon Border Adjustment Mechanism (CBAM). CBAM, introduced by the European Union, is a carbon tax that is likely to affect many of India’s major exports. Therefore, India is expected to get concessions on CBAM as it could have a significant impact on exports of steel, aluminium, cement and fertilisers. However, it remains unclear whether the EU will be willing to make such concessions.



What is CBAM?

The Carbon Border Adjustment Mechanism (CBAM) is an EU policy designed to put a fair price on carbon released during the production of carbon-intensive goods entering the EU. It aims to prevent “carbon leakage” by ensuring that imported products incur carbon costs equivalent to goods produced in the EU, thus promoting cleaner global production. The transition phase for CBAM began on October 1, 2023. CBAM successfully came into force on January 1, 2026 and is likely to result in a 20-35% duty on selected imports.

How will it affect India’s exports to the EU?

While CBAM covers sectors such as cement, iron and steel, aluminium, fertilisers, electricity and hydrogen, India’s iron and steel, aluminum and cement industries are likely to be the most affected by the EU’s carbon tax.

India is the world’s second largest steel producer. It overtook Japan in 2018 to become the world’s second largest steel producer and has remained so since. Similarly, India is the second largest aluminum producer.


According to some reports, around 40% of India’s steel exports go to four EU countries. With the EU’s Carbon Border Adjustment Mechanism (CBAM) now in place, competitiveness will increasingly depend on carbon intensity rather than price alone. For Indian steelmakers, CBAM is likely to translate into higher compliance costs, reduced export demand and increased pressure on decarbonisation operations.

Sustainability and CBAM experts Shubham Thakur and Nilesh Bhattad (CEO of CleanCarbon.ai), in a conversation with Zee News, discuss the key questions regarding CBAM, its impact on Indian exports and how India should prepare to mitigate the effects of this new carbon tax.

Question: By how much will CBAM increase the cost of India’s steel and aluminum exports to the EU and how much of these exports may be affected by 2030?

Answer: With mandatory CBAM reporting from January 2026, India’s iron, steel and aluminum exports to the EU will face higher costs due to carbon-based taxation. Since these are highly carbon-intensive sectors, studies estimate that the additional tax burden of 20-35% will increase further by 2030, weakening business competitiveness. The impact is significant as 38% of India’s steel exports and 27% of its aluminum exports are sent to the EU, putting significant pressure on both sectors.

Question: How could CBAM reduce the competitiveness of Indian exporters compared to countries like China or Russia that face similar tariffs but operate under different carbon pricing systems?

Answer: India’s iron and steel sector is among the most carbon-intensive sectors globally due to heavy dependence on coal-based, emissions-intensive processes. Compared to countries such as China and Russia, gaps in accurate emissions measurement, lack of reliable data, and poor emissions data management further compound this challenge. While China, which has an existing ETS, is largely prepared for CBAM, Indian exporters may find it difficult to remain competitive in the EU market. While platforms like CleanCarbon.ai can help exporters improve compliance and maintain market share, a greater focus on collecting accurate emissions data remains critical to avoiding higher CBAM taxes.

Question: What ripple effects might CBAM have on India’s domestic industries, including higher costs and shifts in supply chains away from the EU?

Answer: Many industries are already witnessing pressure. Suppliers are asked to be prepared for the CBAM levy if their importers are levied in the near future. EU buyers say they will be charged the CBAm duty and are advised to ensure correct CBAM compliance. Some players are shifting their exporters from the EU to other regions and global markets. CBAM will definitely cause major changes in suppliers and EU buyers. Some will leave the EU market, will those that are CBAM compliant expand their market share?

Question: What steps is the Indian government taking to reduce the impact of CBAM, such as a domestic carbon tax or exemptions through the EU-India Free Trade Agreement?

Answer: India, through the Carbon Credit Trading Scheme (CCTS) and the Indian Carbon Market, is creating a domestic compliance framework that can help exporters offset or adjust CBAM-related costs by recognizing domestic carbon pricing. Alongside this, industry bodies like FICCI and SEPC with platforms like CleanCarbon.ai have launched IndiaCBAMRegistry.org to create a CBAM-ready ecosystem that supports trade continuity, reduces MSME uncertainty and maintains India’s export competitiveness as CBAM sanctions tighten.