• The Indian government is considering a scheme to cover 90% of CBAM compliance costs for MSME exporters.
• The EU’s Carbon Border Adjustment Mechanism (CBAM) became fully operational on January 1, 2026.
• CBAM places a carbon price on imports of carbon-intensive goods entering the European Union. India is expected to be significantly affected as it exports several carbon-intensive products covered under CBAM.
• The EU is India’s third-largest trading partner, with bilateral goods trade reaching €118 billion in 2025.
• Government data shows India’s iron and steel exports to the EU fell 13% in the four months through April after CBAM’s rollout.
• An ICRIER study estimates that CBAM could reduce India’s steel exports to the EU by 24%, with fertilisers and aluminium exports also likely to be impacted.
• CBAM also requires exporters to measure, report, and verify product-level emissions, increasing compliance requirements.
• The compliance burden is expected to be particularly challenging for MSMEs, prompting government support measures.
• The move highlights the growing importance of low-carbon manufacturing and sustainable exports for maintaining India’s global trade competitiveness.
• The mechanism currently covers iron & steel, aluminium, cement, fertilisers, hydrogen, and electricity.
• EU importers must now purchase CBAM certificates based on the carbon emissions embedded in imported products.
• The carbon levy is expected to increase the cost of Indian exports, impacting their competitiveness in the EU market.
• The UK will introduce a similar carbon border tax from January 1, 2027, while countries like the US, Australia, Canada, Norway, and Taiwan are exploring or developing similar mechanisms.