India's Carbon Conundrum: EU Border Tax Sparks Export Fears

The European Union's Carbon Border Adjustment Mechanism (CBAM) has introduced a new cost for Indian exporters, requiring them to pay for emissions embedded in select carbon-intensive goods they import. The CBAM puts a carbon price on imports into the EU and requires importers to pay for these emissions.

This has created a challenge for India's export economy, particularly in carbon-intensive industries such as steel, aluminium, cement, and fertiliser. India's merchandise exports touched $441.78 billion in FY26, with metals remaining a major export category. The EU's CBAM currently covers six sectors: iron and steel, aluminium, cement, fertilisers, electricity, and hydrogen.

NITI Aayog estimates that the EU accounts for approximately 22% of India's combined steel and aluminium exports. In the iron and steel sector, India's trade exposure to the EU stands at 39.3%. The ICRIER working paper estimates that India's steel exports to the EU could fall by 24% under the CBAM.

New Delhi is trying a new route of its own: putting a price on emissions at home and building a domestic carbon market. India has created a Committee on Export Preparedness for EU CBAM, and Indian verifiers have begun aligning plant auditing protocols with the EU's carbon registry. Britain has also agreed to recognise India's Carbon Credit Trading Scheme (CCTS).