EU CBAM Explained for Indian Exporters: Who Pays, How Much, and What to Do Now

What Is CBAM?

The Carbon Border Adjustment Mechanism (CBAM) is a European Union regulation that puts a carbon price on imports of carbon-intensive goods. It is designed to mirror the EU Emissions Trading System (EU ETS), which already requires European manufacturers to buy emission allowances for every tonne of CO2 they produce. Without CBAM, EU manufacturers would be at a cost disadvantage against importers from countries that do not price carbon. A problem called "carbon leakage."

CBAM closes that gap. When goods covered by CBAM enter the EU, the importer must purchase CBAM certificates at a price that matches the weekly average EU ETS carbon price. The number of certificates required depends on the embedded emissions in the imported product. The total CO2 emitted during its manufacture. If the exporting country already imposes a carbon price, that amount can be deducted from the CBAM obligation.

For Indian exporters, this means that the carbon intensity of your manufacturing process is now a direct cost factor in your largest export market. The EU is India's third-largest trading partner, and sectors like steel and aluminium (where India is a significant exporter) are squarely in CBAM's crosshairs.

Timeline: From Transitional to Definitive

CBAM is being rolled out in two phases. Understanding where we are in the timeline is critical for planning.

Products and HS Codes Covered

CBAM currently applies to six product categories, chosen because they are carbon-intensive and at highest risk of carbon leakage:

The regulation also covers certain downstream products. For example, screws, bolts, and tubes made from iron or steel (HS 73) and aluminium structures and containers (HS 76). If your product contains significant quantities of covered materials, check whether its specific HS code falls within the CBAM Annex I list. The EU Commission has published the complete CN (Combined Nomenclature) code list in the implementing regulation.

How CBAM Pricing Works

The CBAM cost calculation is straightforward in principle:

CBAM cost = Embedded emissions (tonnes CO2) × CBAM certificate price (€/tonne) − Carbon price already paid in origin country

The CBAM certificate price is pegged to the weekly average closing price of EU ETS allowances. As of mid-2026, this hovers between €65 and €80 per tonne of CO2 . Historically, ETS prices have ranged from €20 (during COVID lows) to over €100 (in early 2023), so exporters should plan for volatility.

The EU importer (not the Indian exporter) is legally responsible for purchasing CBAM certificates. They must register as an "authorised CBAM declarant" and submit an annual CBAM declaration by 31 May each year for goods imported in the previous calendar year. However, the cost is almost always negotiated back into the FOB price. If your EU buyer faces an additional €50 per tonne on steel imports, they will push that cost to you.

The carbon price deduction is important for Indian exporters. If India introduces a carbon tax or an emissions trading scheme that covers your products, the amount paid domestically can be deducted from the CBAM obligation. Currently, India does not have a carbon price that qualifies for this deduction. Though this is changing (see India's policy response below).

Impact on Indian Exporters

India is one of the countries most exposed to CBAM. Indian steel production relies heavily on coal-based blast furnaces, and the power grid remains predominantly coal-fired, making embedded emissions significantly higher than EU or global averages. Here is what the numbers look like:

For steel, India's average emission intensity is roughly 2.5 tonnes of CO2 per tonne of crude steel, compared to about 1.5 tonnes for the EU average. At a CBAM certificate price of €70/tonne, that means an additional €70. 175 per tonne of steel exported, depending on the product and whether the exporter reports actual or default emissions.

Aluminium is even more exposed because smelting is extraordinarily energy-intensive. Indian aluminium smelters that rely on coal-fired captive power plants face embedded emissions of 15. 20 tonnes CO2 per tonne of aluminium, compared to 5. 8 tonnes for hydro-powered smelters in countries like Norway or Canada. The CBAM cost differential can be €500. 1,000 per tonne. A significant fraction of the metal's FOB price.

Reporting Requirements

During the transitional period (October 2023 to December 2025), EU importers were required to file quarterly CBAM reports declaring the embedded emissions of imported goods. No financial payment was required, but the reporting obligation gave the EU Commission data to calibrate the definitive mechanism.

From January 2026, the reporting continues but with real financial consequences. The EU importer must submit an annual CBAM declaration by 31 May covering all CBAM goods imported in the previous calendar year. This declaration must include:

• · Total quantity of each CBAM product imported (in tonnes)
• · Total embedded emissions (direct and indirect, in tonnes CO2e)
• · Number of CBAM certificates to be surrendered
• · Any carbon price paid in the country of origin (for deduction)

The critical point for Indian exporters: while the legal reporting obligation falls on the EU importer, the emissions data must come from you. Your EU buyer will request detailed information about your production processes, energy sources, and emissions intensity. If you cannot provide actual verified data, the EU will apply default emission values. Which are typically based on the worst-performing installations or country averages and are almost always higher than actual emissions for well-run facilities.

Calculating Embedded Emissions

Embedded emissions under CBAM include two components:

Scope 1

Direct emissions

. CO2 released directly from the manufacturing process (e.g., emissions from a blast furnace, calcination in cement kilns, chemical reactions in aluminium smelting).

Scope 2

Indirect emissions

. CO2 from the generation of electricity consumed in the manufacturing process. This is particularly significant for aluminium smelting, which is extremely electricity-intensive.

Exporters have two options for determining the emissions figure used in CBAM calculations:

Default values: The EU Commission publishes default emission values for each product category and country of origin. These are based on average emission intensities and are designed to be conservative (i.e., high). Using default values requires no effort from the exporter, but results in a higher CBAM cost for your EU buyer. And therefore a larger discount they will demand from you.

Actual values: You can provide your actual embedded emissions based on verified production data. This requires implementing an emissions monitoring system, calculating your product-specific carbon footprint using approved methodologies, and having the data verified by an accredited verifier. The investment pays off if your actual emissions are lower than the default values. Which they usually are for exporters who have invested in energy efficiency or renewable energy.

What Indian Exporters Should Do Now

CBAM is not a future problem. The definitive period has started. Here are the concrete steps to take:

Action checklist

• Calculate your carbon footprint for each export product. Start with your energy consumption data (electricity bills, fuel purchase records) and apply emission factors from IPCC or BIS guidelines. Know your number before your EU buyer asks for it.
• Implement emissions monitoring and reporting systems. This does not have to be expensive. Even a well-maintained spreadsheet model covering fuel inputs, electricity consumption, and process emissions per unit of output is a starting point. Graduate to automated monitoring as volumes justify it.
• Evaluate renewable energy options. Switching to solar or wind power for your manufacturing operations directly reduces your Scope 2 emissions and therefore your CBAM exposure. For aluminium smelters, this can cut CBAM costs by 30. 50%. Open-access solar and green power purchase agreements (PPAs) are increasingly available across Indian industrial states.
• Engage proactively with your EU importers on emissions data sharing. Do not wait for them to ask. Provide your actual emissions data in the format the EU CBAM regulation specifies. This positions you as a preferred supplier. Buyers will gravitate toward exporters who make CBAM compliance easy.
• Explore India's carbon credit mechanism. India's evolving carbon market framework may eventually produce credits that qualify for CBAM deduction. Stay informed through industry associations like CII, FICCI, or your export promotion council. Even if deduction is not yet available, early participation positions you for future benefits.
• Review your [export pricing](/resources/export-pricing-costing) to account for CBAM. Model the cost impact at different ETS price scenarios (€50, €75, €100 per tonne) and decide how much of the CBAM cost you can absorb versus pass through. Build this into your next pricing negotiation with EU buyers.

India's Policy Response

India has publicly criticised CBAM as a unilateral trade measure that disadvantages developing economies, and has raised concerns at the WTO and G20. At the same time, Indian policymakers recognise that a domestic carbon pricing mechanism could serve double duty: it would signal India's climate commitment and create a deduction that reduces the CBAM burden on Indian exporters.

Several domestic developments are underway:

• · Indian Carbon Market (ICM): The Energy Conservation (Amendment) Act, 2022 provides the legal framework for a domestic carbon trading scheme. The Bureau of Energy Efficiency (BEE) is developing the rules for the compliance market, expected to become operational in phases.
• · BIS carbon footprint standards: The Bureau of Indian Standards is developing product-specific carbon footprint measurement standards aligned with ISO 14067. These standards would give Indian exporters a credible, internationally recognised framework for reporting actual emissions.
• · Industry lobbying: Steel and aluminium industry associations are working with the Ministry of Commerce to negotiate transitional relief or equivalence recognition with the EU. The goal is to have India's domestic carbon price recognised for CBAM deduction purposes.

Opportunities in a Carbon-Priced World

CBAM is not only a cost. It is a competitive reordering. Exporters who move early to reduce carbon intensity will gain structural advantages:

• · Lower CBAM cost = price advantage. If your embedded emissions are 30% below the Indian average, your EU buyer saves 30% on CBAM certificates compared to sourcing from a competitor. That makes you the preferred supplier purely on economics.
• · Green premium positioning. European manufacturers are increasingly marketing "low-carbon steel" and "green aluminium" as premium products. If you can certify your products as low-emission, you access a market segment that commands higher prices and more stable demand.
• · First-mover advantage in emissions data. EU importers will prefer suppliers who already have verified emissions data and can provide it in the required format. Building this capability now, while competitors are still figuring out what CBAM means, locks in buyer relationships.
• · Diversification trigger. CBAM should accelerate your thinking about market diversification. While the EU is implementing CBAM, the UK has announced its own carbon border mechanism, and other countries (Canada, Australia) are considering similar schemes. The global direction is clear. Low-carbon production is becoming a market-access requirement, not just a sustainability initiative.

Frequently Asked Questions

Do Indian exporters have to pay CBAM directly to the EU?

No. The CBAM payment obligation falls on the EU importer, not the Indian exporter. The EU importer must register as an authorised CBAM declarant and purchase certificates matching the embedded emissions. However, the cost is almost always negotiated back into the FOB price. So while you do not pay the EU directly, CBAM effectively reduces your competitiveness and margins on EU-bound exports.

Which Indian export products are covered under EU CBAM?

CBAM covers six categories: iron and steel (HS chapters 72, 73), aluminium (HS 76), cement (HS 2523), fertilizers, electricity, and hydrogen. For India, the biggest impact is on iron and steel (~$4.5B to EU) and aluminium (~ .2B to EU). Downstream products containing these materials may also be covered depending on their HS classification.

Can Indian exporters reduce their CBAM cost by using renewable energy?

Yes. CBAM cost is tied to embedded emissions, which include indirect emissions from electricity consumption (Scope 2). Switching to renewable energy reduces Scope 2 emissions, directly lowering the embedded emissions figure. For aluminium smelters, where electricity is a major input, this can reduce CBAM exposure by 30. 50%. You must provide verified actual emissions data to claim this benefit. Default values will not reflect your renewable energy use.

Related Guides

• Export Pricing & Costing Guide. How to build your export price. FOB, CIF, landed cost, and margin analysis for Indian exporters.
• Exporting to France. Country guide for Indian exporters. Regulations, duties, documentation, and market entry for France.
• Exporting to Germany. Country guide for Indian exporters. The EU's largest economy, compliance requirements, and market access.
• Exporting to the Netherlands. Country guide covering the Netherlands as a key EU gateway. Rotterdam port, re-export opportunities, and duties.

Update history

• 2026-07-24 First published.