EU CBAM Impact on Indian Steel Exports: Costs & Timelines

Key takeaways

India is the world's second-largest steel producer and one of the EU's top steel suppliers. In 2024, Indian steel exports to the EU were valued at approximately USD 4 billion , spanning everything from hot-rolled coils to seamless tubes. That trade is now heading into a regulatory reality that will fundamentally change its economics.

The EU's Carbon Border Adjustment Mechanism (CBAM) is designed to prevent "carbon leakage," the phenomenon where EU manufacturers move production to countries with laxer emission rules, or where cheaper, dirtier imports undercut EU producers who pay for their carbon emissions. CBAM does this by imposing a carbon cost on imports that mirrors the price EU producers pay under the EU Emissions Trading System (EU ETS).

For Indian steel exporters, CBAM is not a distant policy debate. The financial obligations begin in January 2026, and EU importers are already factoring the anticipated costs into procurement decisions. If you export steel to Europe, this article breaks down exactly what CBAM means for your margins, how you compare to competitors, and what you should be doing right now.

What Is CBAM and Why It Matters for Steel

CBAM is a regulation adopted by the European Union in May 2023 (Regulation (EU) 2023/956) that puts a carbon price on certain imported goods. The mechanism works by requiring EU importers to purchase CBAM certificates corresponding to the embedded emissions in the goods they import. The price of these certificates is linked to the weekly average auction price of EU ETS allowances.

CBAM currently covers six sectors: iron and steel, aluminium, cement, fertilisers, electricity, and hydrogen . Iron and steel is by far the most trade-exposed sector for India. The regulation covers not just crude steel but a wide range of downstream products. From flat-rolled sheets to tubes, pipes, and even certain fabricated steel articles.

The core principle is straightforward: if a tonne of steel produced in India generates more CO2 than the same tonne produced inside the EU, the Indian exporter (or rather, the EU importer) pays the difference. If the exporting country has its own carbon pricing system, the amount already paid domestically can be deducted from the CBAM obligation. This is where India's problem begins. India currently has no carbon price that qualifies for a CBAM deduction.

The 2026 Definitive Phase: Key Timeline

CBAM implementation is split into two phases. Understanding the timeline is critical because the financial exposure escalates significantly as free allowances under the EU ETS are withdrawn.

India's Steel Export Exposure to the EU

India's steel exports to the EU are concentrated in a handful of product categories. Understanding which HS codes are most exposed helps exporters quantify their individual CBAM liability and prioritise mitigation efforts.

Together, these five HS code groups account for the bulk of India's approximately USD 4 billion in annual steel exports to the EU. Italy, Belgium, Spain, and Germany are the primary destination markets. The EU is India's second-largest steel export destination after the Middle East, and unlike the Middle East, there is no prospect of the EU relaxing environmental requirements.

Beyond these primary categories, CBAM also covers downstream steel products under HS Chapter 73. Screws, bolts, steel structures, and other fabricated articles. While the embedded emissions calculation for downstream products is more complex (it includes the emissions from the steel input plus any additional processing), the financial exposure is real and often overlooked by smaller fabricators who do not think of themselves as "steel exporters."

Financial Impact: The EUR 168 per Tonne Problem

The financial impact of CBAM on Indian steel exports can be estimated using three variables: the carbon intensity of Indian steel production, the EU ETS carbon price, and any domestic carbon price India can claim as a deduction.

CBAM cost calculation for Indian steel

Average CO2 intensity of Indian steel

2.1 t CO2 / t steel

EU ETS carbon price (approx.)

€80 / t CO2

Domestic carbon price deduction (India)

€0

CBAM cost per tonne of steel

€168 / t steel

The 2.1 tonnes of CO2 per tonne of steel figure is the industry-average for Indian steel production, which is dominated by the blast furnace-basic oxygen furnace (BF-BOF) route using coal-based reduction. This is significantly higher than the global average of approximately 1.85 t CO2/t steel and well above the EU average of around 1.5 t CO2/t steel.

At current EU ETS prices of approximately EUR 80 per tonne of CO2, the CBAM charge works out to EUR 168 per tonne of Indian steel (2.1 × 80 = 168). For context, the FOB price of Indian hot-rolled coils to Europe ranges between EUR 500 and EUR 650 per tonne depending on market conditions. A EUR 168 surcharge represents a 26-34% cost increase on top of the base price.

To put the aggregate numbers in perspective: if India exports approximately 6 million tonnes of steel to the EU annually, the total CBAM liability at full phase-in would be approximately EUR 1 billion per year . Even during the early phase-in years, the annual liability will run into hundreds of millions of euros.

India vs Competitors: Who Pays More Under CBAM?

CBAM does not affect all steel-exporting countries equally. The financial impact depends on two factors: the carbon intensity of each country's steel production and whether that country has a domestic carbon price that qualifies for a CBAM deduction. India is disadvantaged on both counts.

The numbers tell a clear story. Turkey is India's most dangerous competitor under CBAM. Turkish steel production is heavily EAF-based, using scrap rather than iron ore, which results in significantly lower CO2 intensity (approximately 1.1 t CO2/t steel vs India's 2.1). Turkey also has geographic proximity to the EU, lower freight costs, and is actively developing an ETS to qualify for CBAM deductions. Turkish steel already has a landed cost advantage in many EU markets; CBAM will widen that gap.

South Korea operates a functioning emissions trading system (K-ETS) with carbon prices around EUR 12 per tonne. Combined with lower emission intensity (higher EAF share, cleaner grid power), South Korean steel faces a net CBAM cost of approximately EUR 75 per tonne. Less than half of India's. Korean mills like POSCO are also investing heavily in hydrogen-based steelmaking, which will further reduce their CBAM exposure over time.

China faces significant CBAM exposure due to sheer volume, but its national ETS (launched in 2021 for the power sector, with steel expected to be included) provides at least a partial deduction mechanism. China's CO2 intensity for steel is also lower than India's at approximately 1.8 t CO2/t steel, partly due to greater EAF adoption and more efficient blast furnace operations at scale.

India's Carbon Pricing Gap: The CCTS Problem

Under CBAM rules, exporters can claim a deduction for any "carbon price effectively paid in the country of production." This is designed to avoid double taxation. If India charged its steel producers EUR 30 per tonne of CO2, that amount would be deducted from the CBAM certificate cost. But India does not currently have a qualifying carbon pricing mechanism.

India launched the Carbon Credit Trading Scheme (CCTS) in June 2023 under the Energy Conservation (Amendment) Act. The CCTS aims to create a domestic carbon market, but it is still in early stages. As of mid-2026, the scheme has not yet established a functioning trading platform with verified, transparent pricing that would meet EU verification standards for CBAM deductions.

The gap between India's CCTS and a CBAM-qualifying carbon price is not just about having a number. The EU requires that the carbon price be "effectively paid". Meaning it must be a mandatory, verifiable charge that the producer has actually paid, with documentation that meets EU standards for embedded emissions verification. Voluntary carbon credits, PAT scheme certificates (Perform, Achieve, Trade), and Renewable Energy Certificates do not qualify.

This creates a paradox: India's lack of a domestic carbon price means Indian exporters pay the full CBAM cost in Europe, while the Indian government collects zero revenue from the same emissions domestically. The carbon revenue that could have stayed in India (funding green steel investments, cleaner grid power, or technology upgrades) instead flows to the EU treasury. Some trade economists have called CBAM a "carbon tariff by another name" for precisely this reason.

India has raised objections to CBAM at the WTO, arguing it violates the principle of "common but differentiated responsibilities" under the Paris Agreement. However, most trade law experts believe CBAM is unlikely to be overturned through WTO dispute resolution, at least not in the timeframe that matters for exporters currently negotiating 2027-2030 supply contracts.

How Indian Steel Exporters Should Prepare

Waiting for the Indian government to negotiate a CBAM exemption or fast-track the CCTS is not a strategy. Indian steel exporters need to take concrete steps now across three areas: emissions measurement, production decarbonisation, and market diversification.

A. Get Your Emissions Data Right

The single most important near-term action is to establish accurate, verifiable emissions measurement at the installation level. Under CBAM, importers must report actual embedded emissions, not just country-level defaults. If you can demonstrate that your specific facility produces steel at 1.7 t CO2/t instead of the Indian average of 2.1, your CBAM cost drops from EUR 168 to EUR 136 per tonne. That difference is significant.

Emissions measurement checklist

• Map all direct emissions (Scope 1) from your steelmaking process: coke ovens, blast furnaces, BOF/EAF, rolling mills, and all auxiliary combustion sources.
• Calculate indirect emissions from purchased electricity (Scope 2) using your actual grid emission factor, not national averages. If you have captive solar or wind, this will lower your number.
• Establish monitoring, reporting, and verification (MRV) systems that meet EU standards. Consider engaging an EU-accredited verifier now so your data is credible when importers ask.
• Calculate product-level embedded emissions for each HS code you export, not just a plant-level average. Different products from the same mill can have different emission intensities.

B. Invest in Decarbonisation

While emissions measurement is the near-term priority, medium-term competitiveness requires actual reductions in carbon intensity. Indian steel producers have several levers available, each with different cost-benefit profiles.

The most practical near-term wins are energy efficiency improvements and increasing the use of renewable power. JSW Steel, Tata Steel, and SAIL have all announced green steel roadmaps, but the pace of implementation matters more than announcements. An Indian exporter who can verifiably demonstrate 1.5 t CO2/t steel (matching the EU average) would reduce their CBAM cost from EUR 168 to EUR 120 per tonne. A saving of EUR 48 on every tonne shipped to Europe.

C. Diversify Export Markets

While decarbonisation is the right long-term play, export market diversification is a pragmatic parallel strategy. CBAM currently applies only to EU imports. Redirecting some EU-bound volumes to markets without carbon border mechanisms can help manage the immediate financial impact.

Diversification considerations

• The Middle East, Southeast Asia, and Africa are growing steel markets with no current CBAM-equivalent mechanisms. India already has strong trade relationships and freight advantages to these regions.
• The UK has announced its own CBAM starting January 2027. If you are diverting EU volumes to the UK, factor in that the UK will have similar costs within a year.
• Australia, Canada, and Japan are exploring carbon border measures. Diversification is a bridge, not a permanent solution. The direction of global trade policy is clear. Carbon costs at borders will spread.
• Do not abandon the EU market entirely. EU steel demand is stable and high-value. The exporters who solve the CBAM challenge will have a durable competitive moat.

Frequently Asked Questions

How much will CBAM add to the cost of Indian steel exports to the EU?

At full phase-in (2034 onwards), CBAM is estimated to add approximately EUR 168 per tonne to Indian steel exports, based on an average carbon intensity of 2.1 t CO2/t steel and an EU ETS price of EUR 80/t CO2. During the phase-in period (2026-2033), the effective cost will be lower due to free EU ETS allowances still in circulation. For a mid-size exporter shipping 50,000 tonnes annually to the EU, the fully phased-in cost would be approximately EUR 8.4 million per year.

When does CBAM become financially binding for Indian steel exporters?

The definitive phase begins on 1 January 2026, when EU importers must start purchasing CBAM certificates. Financial obligations are phased in gradually as free EU ETS allowances are reduced, reaching full application by 2034. However, the practical impact is already being felt. EU importers are factoring anticipated CBAM costs into contract negotiations and procurement decisions today.

Does India have a carbon pricing system that can offset CBAM costs?

Not yet. India launched the Carbon Credit Trading Scheme (CCTS) in June 2023, but it has not yet established a functioning carbon market with pricing that meets EU verification standards. Until the CCTS matures into a credible, verifiable mechanism recognised by the EU, Indian exporters will bear the full CBAM cost with no offset. This is a significant disadvantage compared to South Korea (which has the K-ETS) and even China (which has a national ETS covering the power sector).

Which Indian steel products are covered under CBAM?

CBAM covers a wide range of iron and steel products under HS Chapter 72 and parts of Chapter 73. The most affected Indian exports include HS 7208 (hot-rolled flat products), 7209 (cold-rolled), 7210 (coated/galvanised), 7219 (stainless steel flat products), and 7304 (seamless tubes and pipes). Downstream fabricated steel products under HS Chapter 73 are also covered. For the full list of covered CN codes, see Annex I of Regulation (EU) 2023/956.

Related Guides

• Complete CBAM Guide for Indian Exporters. Everything Indian exporters need to know about CBAM compliance: registration, reporting, verification, and certificate purchase.
• FEMA Compliance for Exporters. Complete guide to FEMA obligations for Indian exporters. Repatriation, reporting, and penalties.
• EDPMS Reporting Guide. How to keep your EDPMS entries matched and avoid RBI flags on your IEC.
• Common FEMA Violations. The 7 most common FEMA contraventions Indian exporters make and how to avoid penalties.

Update history

• 2026-08-11 First published.