The EU Carbon Border Tax Is Live. Here’s What It Means for Indian Manufacturers.
If you export to Europe — or supply a company that does — a new cost has just appeared in your supply chain. It’s called CBAM: the Carbon Border Adjustment Mechanism. And unlike most regulatory developments that take years to arrive in Indian business practice, this one is already law, already generating compliance obligations, and already affecting sourcing decisions in European procurement offices.
This guide explains precisely what CBAM is, who it affects in India, how large the financial exposure is, and what manufacturers need to do now.
What CBAM Is and Why It Exists
For decades, the European Union’s carbon pricing system — the Emissions Trading Scheme (ETS) — created a structural competitive disadvantage for European producers. A European steelmaker paying €60–80 per tonne of CO₂ under the ETS competed against steel from India, China, Turkey, or Brazil where the equivalent cost was zero.
This is what economists call “carbon leakage” — the phenomenon where carbon-intensive production shifts to less-regulated jurisdictions, not reducing global emissions but simply moving them.
CBAM is the EU’s solution. It requires European importers of covered goods to purchase CBAM certificates corresponding to the embedded carbon in what they import, priced at the current ETS rate. This effectively levels the playing field: European producers and foreign producers now face equivalent carbon costs for goods sold in the EU.
Phase 1 sectors (October 2023 onward): Cement, Iron & Steel, Aluminium, Fertilisers, Electricity, and Hydrogen.
Transition phase: October 2023 to December 2025 — reporting requirements, no financial obligation.
Full enforcement: January 2026 onward — CBAM certificates must be purchased.
India has no comprehensive carbon price. This means Indian producers receive zero credit against CBAM — they pay the full tariff on their embedded carbon.
The Financial Exposure: Real Numbers
The CBAM charge is calculated based on the embedded carbon per unit of the exported product, multiplied by the EU ETS price.
Current ETS price: approximately €60–80 per tonne CO₂.
Indian steel: India’s average carbon intensity for crude steel is approximately 2.2–2.5 tonnes CO₂ per tonne of steel (blast furnace route, coal-based). At €70/tonne CO₂, the CBAM charge on one tonne of Indian steel is approximately €154–175. Converted at current exchange rates: roughly ₹13,500–15,300 per tonne.
For context: Indian steel exports to the EU in FY25 averaged approximately ₹55,000–70,000 per tonne depending on grade. The CBAM surcharge represents 20–28% of the export price. This is not a rounding error in a trade negotiation. It is a fundamental shift in competitiveness.
EU best-in-class electric arc furnace steel (green electricity): 0.3 tonnes CO₂ per tonne — CBAM charge of €21. The gap between Indian and European best-practice steel in CBAM terms is €130–150 per tonne.
Aluminium: India’s average carbon intensity for primary aluminium: 12–15 tonnes CO₂ per tonne (including smelting emissions from coal-based electricity). EU aluminium made with hydropower: 2–4 tonnes. The CBAM differential for aluminium is enormous.
Fertilisers (ammonia/urea): India’s fertiliser production is predominantly natural gas-based, but with coal-based captive power. Carbon intensities vary but typically exceed EU benchmarks by 30–60%.
Who Is Affected — Direct and Indirect Exposure
Direct exposure: Indian companies that export CBAM-covered goods directly to EU buyers. These companies’ EU importers must now purchase CBAM certificates on their behalf. The economic burden transfers to the Indian exporter through price negotiation, or the importer absorbs it and switches to lower-carbon sources.
Indirect exposure: This is the exposure most Indian manufacturers haven’t yet calculated. If your product is a component in another manufacturer’s export to the EU, your embedded carbon flows into their CBAM liability. Auto component manufacturers, chemical intermediate producers, packaging companies, industrial equipment makers — all potentially exposed through their customer’s EU supply chains.
The supply chain cascade: A European car manufacturer buying Indian steel for its manufacturing operations in EU doesn’t directly face CBAM on the steel (they’re European). But their Indian Tier-1 supplier selling steel-containing assemblies to them may face CBAM on the embedded steel. The cascade is complex and is still being worked out in practice.
The principle to understand: if carbon-intensive Indian production ends up in European supply chains at any point, CBAM will eventually find it.
The Indirect Exposure India Is Missing
Beyond the direct tariff impact, CBAM creates a structural pressure that will reshape Indian supply chains even for businesses that don’t export directly.
European buyers are switching suppliers. A European buyer of Indian hot-rolled coil has a straightforward financial calculation: Indian steel at ₹60,000/tonne + €175 CBAM charge vs. Turkish steel (which has a partial ETS offset) + lower CBAM charge. The total landed cost of Indian steel in Europe has increased significantly. Some buyers are restructuring their Indian supply relationships.
Indian exporters are restructuring their operations. The most sophisticated Indian steel and aluminium producers — Tata Steel, JSW, Hindalco — have been preparing for CBAM since 2023. They are investing in energy efficiency, green electricity procurement, and DRI (Direct Reduced Iron) technology to reduce their carbon intensity. Smaller producers who have not made these investments are at competitive risk not from regulators but from their own larger Indian competitors who will offer better CBAM positions.
The Scope 3 cascade: Even if you don’t export, if your carbon-intensive product goes into the supply chain of an Indian exporter, their BRSR Scope 3 reporting will identify your emissions as part of their footprint. The pressure to decarbonise will flow upstream.
What Indian Manufacturers Must Do Now
Step 1: Calculate Your Carbon Footprint
You cannot manage or negotiate CBAM exposure without knowing your carbon intensity per unit of output. This requires a Scope 1 and Scope 2 emissions baseline:
Scope 1: Direct fuel combustion in your facility — natural gas, LPG, diesel, furnace oil, coal. Multiply by standard emission factors (available from BEE or IPCC guidelines).
Scope 2: Electricity purchased from the grid. Multiply your kWh by India’s current grid emission factor (approximately 0.82 kg CO₂/kWh for FY25 — BEE publishes this annually).
Divide total annual Scope 1 + Scope 2 emissions by your annual production tonnage. That is your carbon intensity per unit.
A BEE-empanelled energy auditor can do this for you for ₹1.5–3 lakh for a medium-sized plant. The output is a verified emissions baseline — which is your CBAM documentation, your insurance argument, and your contract negotiation tool.
Step 2: Map Your EU Exposure
Which of your products, directly or indirectly, end up in the EU market? Which of your customers export to the EU? Building this map is the foundation of your CBAM risk assessment.
Once mapped, you can calculate the CBAM financial exposure at current ETS prices, and model scenarios for ETS prices of €100/tonne (the trajectory suggests this within 3–5 years) and €150/tonne (Paris Agreement-consistent pricing).
Step 3: Invest in Decarbonisation
Every unit of carbon intensity reduction has a direct, calculable CBAM benefit. The economics of renewable energy investment, energy efficiency improvement, and process technology upgrades need to be recalculated with CBAM in the picture.
Rooftop solar reduces Scope 2 emissions. At a typical large plant, the payback period on solar is 3–4 years. Add CBAM savings — which reduce the effective cost of that carbon on each unit exported — and the financial case strengthens significantly.
Energy-efficient furnace technology, waste heat recovery, demand-side management — all of these have CBAM co-benefits that must be included in the investment justification.
Step 4: Engage With India’s Carbon Market Development
The Bureau of Energy Efficiency and SEBI are developing India’s domestic carbon credit framework. When India establishes a credible, CBAM-compatible carbon pricing mechanism, Indian exporters may receive credit against CBAM for carbon costs paid domestically.
Manufacturers who have established verified carbon baselines and documented their emission reductions will be best positioned to benefit from this mechanism when it arrives. The baseline work you do today serves multiple future uses.
The 4-Level Action Plan
Personal (as a business owner): Pull your last 12 months of electricity bills and fuel purchase records. Spend an afternoon calculating your total Scope 1 and Scope 2 emissions using BEE emission factors. That calculation — even done approximately — gives you the first data point you’ve ever had on your carbon footprint.
Professional (as a manager or export head): Map your top 10 export customers. Which sell into EU markets? Contact them and ask explicitly: “Have you received CBAM compliance requirements? What carbon data do you need from us?” Being proactive positions you as a forward-thinking supplier. Being reactive positions you as a compliance problem.
Company-level: Commission a full Scope 1 + 2 emissions audit with a BEE-empanelled energy auditor. Build a carbon reduction roadmap with measurable targets. The first reduction target should be achievable within 18 months — it demonstrates commitment and generates verified data.
Engage with your industry association (FISMO, CII Steel Division, Aluminium Association of India) on collective CBAM representation. Sector-wide carbon benchmarks and collective negotiating positions with EU trade representatives are more powerful than individual responses.
Policy-level: India’s trade negotiators are in discussions with the EU for CBAM phase-in adjustments for developing country exporters. Support this advocacy — but do not rely on it as a substitute for operational decarbonisation. Negotiate while you invest.
Push for accelerated implementation of India’s domestic carbon market. An ICAP-compatible Indian ETS that generates internationally recognised carbon credits is the only long-term structural solution to India’s CBAM disadvantage.
The Honest Assessment
CBAM is one of the most significant trade policy developments affecting Indian manufacturing in a generation. Its financial impact — 15–30% effective tariff on carbon-intensive exports — dwarfs most conventional trade barriers.
The Indian government has challenged CBAM’s WTO compatibility. That challenge may succeed, partially or fully, in the long run. But the timeline for WTO dispute resolution is years. The timeline for CBAM enforcement is now.
The manufacturers who treat CBAM as a political problem to be resolved at the government level will lose contracts in the interim. The manufacturers who treat it as an operational problem to be solved with carbon intensity reduction will maintain their EU market position — and emerge more competitive in every other market as a result.
Green manufacturing is no longer optional for Indian exporters.
It is the tariff you pay for not being green.
Resources
- EU CBAM official portal: cbam.trade.ec.europa.eu
- BEE emission factors for India: beeindia.gov.in
- BEE energy audit empanelled list: beeindia.gov.in/content/ea-portal
- India carbon market framework: mnre.gov.in (CCTS scheme)
- FICCI CBAM working group: ficci.in
Amit Saha is the founder of Pro India. If you are a manufacturer assessing your CBAM exposure and would like to connect with BEE-empanelled auditors or CBAM compliance consultants, write to info@proindia.net.
