India’s Metal Exports Under Pressure From Carbon Tax
India’s metal exporters are confronting a new challenge as the European Union implemented the world’s first carbon border adjustment mechanism (CBAM) on January 1, 2026. The levy imposes a carbon-related charge on imports of steel, aluminium, and other energy-intensive goods from countries with lower environmental standards than the EU, potentially forcing Indian exporters to cut prices by 15–22 per cent to remain competitive.
The CBAM targets imports from sectors with high carbon footprints, including steel, aluminium, cement, chemicals, and paper. India is particularly exposed in aluminium and steel exports, where domestic production is dominated by blast furnace–based processes that emit more CO₂ compared with the arc furnace methods widely used in the EU, US, and UK. Smaller manufacturers sourcing materials from larger producers face compliance challenges because plant-level carbon emissions data is often unavailable, which may result in default high emission benchmarks under EU rules.According to the Global Trade Research Initiative (GTRI), the complex reporting and verification requirements could disproportionately affect Indian MSMEs. These smaller exporters may struggle to comply with stringent carbon documentation, raising costs and threatening market access. Analysts suggest that many may exit the EU market if unable to absorb or pass on CBAM costs, altering supply dynamics for steel and aluminium in global trade.
Indian authorities are exploring mitigation strategies, including encouraging cleaner production methods such as electric arc furnaces and negotiating carve-outs for smaller enterprises in ongoing India–EU trade discussions. However, the EU has stated that CBAM is not negotiable, complicating policy options for India’s government and exporters alike.Experts argue that CBAM’s climate impact is limited, potentially reducing global CO₂ emissions by just 0.1 per cent. Trade analysts view the regulation as a commercial lever for developed economies, providing competitive advantages to EU, US, and UK producers who already employ low-emission production technologies. United Nations trade bodies have warned that such unilateral measures could undermine export-led development in poorer nations while offering minimal environmental benefit.
From an industrial perspective, the timing of CBAM intersects with India’s ambitions to expand sustainable infrastructure, green steel, and urban construction supply chains. Higher compliance costs for exporters may affect pricing, investment in cleaner technology, and the competitiveness of Indian materials in critical urban development projects. Indian policymakers must balance trade advocacy, environmental ambitions, and industrial growth to safeguard the country’s export competitiveness.
The government has formally communicated concerns over CBAM, highlighting that unilateral regulations and deforestation-linked laws risk penalising developing economies while offering limited incentives for emission reduction. Industry observers emphasise that the ability of Indian steel and aluminium exporters to adapt will play a key role in shaping trade flows, domestic investment in low-carbon technology, and the country’s engagement in global climate-aligned markets.
