Indian exporters of products covered by carbon tax will have to cut prices by 15-22% to remain competitive in the European Union (EU) as the payment phase under the Carbon Border Adjustment Mechanism (CBAM) becomes operational from January 1, according to Global Trade Research Initiative (GTRI).
This cut will be necessary so that the importers can use that margin to pay carbon tax. The CBAM will initially apply to iron and steel, aluminium, fertilizers, cement, electricity and hydrogen. India largely esports steel and aluminium to the EU.
From Reporting to Commercial Pressure
“Indian exporters will not pay the tax directly. EU-based importers—registered as authorised CBAM declarants—must buy CBAM certificates linked to the embedded emissions in imported goods. But this cost will be pushed back to Indian exporters,” a report by GTRI said.
Before the tax collection, the reporting phase of CBAM regarding carbon emission at production stage started in October 2023. This in some way led to a 24.4 % drop in steel and aluminium exports to the EU to $ 5.82 billion in 2024-25 from $ 7.71 billion in the previous year.
From Jan 1 onward, the CBAM will be embedded into every price negotiation. EU buyers will assess whether steel imported from India—including the carbon cost—remains competitive against EU or third-country suppliers. If it does not, pressure will emerge through price cuts, carbon-linked contract clauses, or outright supplier substitution.
The biggest hit will be taken by steel and aluminium exporters. In steel, emissions are highest for blast furnace–basic oxygen furnace (BF–BOF) routes, lower for gas-based direct reduced iron (DRI), and lowest for scrap-based electric arc furnace (EAF) routes. In aluminium, electricity source and power intensity are critical. Power generated from coal significantly raises the carbon burden and, therefore, the CBAM cost.
The CBAM’s complex data and verification requirements will also sharply raise compliance costs, pushing many smaller exporters out of the EU market altogether, GTRI founder Ajay Srivastava said.
Audit Readiness
“CBAM is not a corporate sustainability exercise; it is a plant-level emissions accounting regime. Emissions must be calculated for each installation, covering direct fuel combustion and electricity consumption,” he added. Manufacturing exporters have to track fuel use, electricity consumption, production volumes, and emission factors on a quarterly basis.
” Records must be auditable and aligned with EU methodologies. Without this discipline, exporters face default emission values set by the EU intentionally conservative and often 30-80 per cent higher than actual emissions,” Srivastava said.
From 2026, he said, independent verification of emissions data becomes mandatory. Only EU-recognised or ISO 14065 compliant verifiers will be accepted. The process will resemble a financial audit, involving document review, emissions validation, and formal certification.
Low-emission producers that are using cleaner electricity, for them CBAM can become a competitive advantage in the EU market, the report said.
