CBAM Will Impose Carbon Costs on Indian Steel and Aluminium Exports to the EU in 2026

The European Union is activating its carbon tax on selected metals from Thursday, and Indian steel and aluminium exporters are bracing for pressure on prices, margins, and market access, according to the Global Trade Research Initiative, which expects many suppliers to absorb part of the levy to remain competitive within the 27-country bloc.

GTRI said EU buyers will seek price cuts of about 15-22 per cent from Indian suppliers so that importers can use the saved margin to pay the carbon border adjustment mechanism charge on each consignment, even though the legal obligation to buy CBAM certificates rests with firms based in the bloc.

Under the CBAM framework, EU importers registered as authorised CBAM declarants must purchase certificates that mirror the carbon emissions embedded in steel and aluminium shipments, yet the think tank expects this cost to be pushed back through the supply chain and reflected in lower realisations for Indian manufacturers over time.

"From 1 January 2026, every shipment of Indian steel and aluminium entering the EU will carry a carbon cost as the Carbon Border Adjustment Mechanism (CBAM) moves from reporting to payment phase," GTRI Founder Ajay Srivastava said.

The transition period before 2026 focuses on reporting, but GTRI warned that the complex data, documentation, and verification rules already raise compliance expenses and could gradually exclude smaller Indian exporters from the EU metals market, as they may lack resources to track emissions and engage accredited verifiers.

Srivastava stressed that accurate emissions accounting is now central to price competitiveness in Europe, noting that "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 must monitor fuel inputs, electricity consumption, output volumes, and applicable emission factors every quarter, and " 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.

EU carbon tax CBAM impact by production route and power source

The tax burden will vary sharply with technology choices, as steel produced through the Blast Furnace–Basic Oxygen Furnace route records the highest emissions, gas-based Direct Reduced Iron processes create lower emissions, while scrap-based Electric Arc Furnace units generate the smallest carbon footprint and therefore the lowest CBAM-related cost.

For aluminium, GTRI highlighted that the source of electricity and overall power intensity matter most, since smelters using coal-based power face a much heavier carbon load than plants drawing on cleaner energy sources, which then feeds directly into the number of CBAM certificates that EU importers will need to purchase for each tonne.

From 2026, emissions data must also undergo independent checks, and only verifiers recognised by the EU or compliant with ISO 14065 standards will be allowed, making the process resemble a financial audit that reviews documents, validates calculations, and then issues formal certification of the emissions attached to each production installation.

GTRI added that producers investing in low-emission technologies and cleaner power could still benefit, as Srivastava noted that "Verified low emissions can protect margins and help win market share as higher-emission suppliers lose ground," especially if rival exporters in other countries continue to rely on carbon-intensive routes.

To prepare, the think tank advised Indian companies to create an internal CBAM shadow price by estimating emissions per tonne of output and applying the prevailing EU carbon price, which can then guide long-term contracts, investment planning, and decisions on whether to keep serving the European market under the new tax regime.

The trade body also connected the policy shift with recent export trends, pointing out that combined Indian steel and aluminium exports to the EU dropped 24.4 per cent, from USD 7.71 billion in FY24 to USD 5.82 billion in FY25, even before CBAM payments begin.

Item	FY24 exports to EU (USD billion)	FY25 exports to EU (USD billion)	Change (%)
Steel and aluminium combined	7.71	5.82	-24.4

GTRI said the EU carbon tax has already become a key point in ongoing negotiations over the proposed trade agreement between India and the bloc, and expected that Indian policymakers and exporters will keep pressing for clarity on CBAM rules while reassessing long-term market strategies for steel and aluminium shipments to Europe.