EU CBAM challenge: GTRI warns of trade hit; urges India to fast-track carbon scheme

Indian steel and aluminium exporters face fresh challenges as the European Union (EU) will begin collecting carbon border taxes under the Carbon Border Adjustment Mechanism (CBAM) from 1 January 2026, according to a new report by the Global Trade Research Initiative (GTRI).

The levy, notified in May 2023, initially covers steel, aluminium, cement, electricity, hydrogen, and fertilisers, but will gradually expand to other products. The mechanism is designed to align the carbon costs of imports with goods produced within the EU.

Exports already hit by reporting rules

Although CBAM tax collection has not yet begun, Indian shipments are already under pressure due to mandatory emissions reporting introduced on 1 October 2023. Many small and mid-sized exporters have struggled with compliance, leading to a sharp fall in exports. As per GTRI, India’s steel and aluminium exports to the EU dropped 24.4% in FY2025, falling from $7.71 billion in FY2024 to $5.82 billion. Steel bore the brunt, with exports down 35.1% to $3.05 billion. Aluminium shipments slipped nearly 10%.

Burden on top of existing trade barriers

The report highlights that CBAM will come on top of safeguard quotas and anti-dumping duties already applied by the EU.

For example, stainless steel cold-rolled flat products from India face provisional anti-dumping duties between 13.6% and 34.6%. These levies, coupled with CBAM, risk further eroding the competitiveness of Indian firms in Europe.

EU’s agenda offers no new concessions

On 17 September 2025, the European Commission released its New Strategic EU-India Agenda, saying carbon costs paid under India’s proposed Carbon Credit Trading Scheme (CCTS) could be deducted from CBAM liabilities. But GTRI notes this is not a concession specific to India. Article 9 of the CBAM regulation already allows such deductions for all trading partners.

India’s carbon credit scheme not ready

India’s CCTS, legally notified under the amended Energy Conservation Act of 2022, is still in its preparatory stage. The scheme, to be administered by the Bureau of Energy Efficiency, will cover nine sectors including steel, cement, and aluminium. However, trading of carbon credit certificates is expected only by late 2026. With modest emission reduction targets and delays in setting up monitoring and verification systems, exporters are unlikely to benefit when CBAM collections begin in January 2026.

Exemptions too narrow to help

The EU has announced small exemptions, including a €150 shipment threshold and a de-minimis exemption for importers of under 50 tonnes annually. However, GTRI says these are too low to cover commercial consignments and provide no real relief to Indian exporters.

Limited relief even after CCTS

Even when India’s carbon market becomes operational, the domestic carbon price is expected to remain under $10 per tonne—far lower than the EU Emissions Trading System’s current €65 (about $71). Exporters would still need to pay the difference, around $61 per tonne of CO₂, as CBAM liability.

Wider economic impact

A separate working paper by the Centre for Social and Economic Progress (CSEP), cited by PTI, estimated India’s GDP could fall by 0.02–0.03% between 2026 and 2030 if CBAM applies without a domestic carbon pricing system. The study warned urban households would face the biggest hit due to higher costs of carbon-intensive goods.

Call for urgent government action

The GTRI report urges the government to fast-track CCTS implementation, set clear sectoral benchmarks, and subsidise reporting costs for MSMEs. It also recommends creating a central helpdesk for exporters and negotiating flexibilities with Brussels similar to those reportedly offered to the US. Without urgent steps, CBAM could deepen India’s trade deficit with the EU and complicate the ongoing free trade agreement talks.