The global steel industry is undergoing a fundamental shift driven by the urgency of climate action, rising energy costs, and stringent trade regulations. Among these changes, the European Union’s Carbon Border Adjustment Mechanism (CBAM) is one of the most consequential developments for Indian exporters. CBAM introduces a carbon price on emissions embedded in imported goods, initially covering sectors such as steel, cement, aluminium, fertilisers, electricity, and hydrogen. As the mechanism transitions from its reporting phase to its operational phase beginning January 2026, Indian steel exporters will face new compliance requirements and potential cost implications.
India, one of the world’s largest steel producers and exporters, ships significant volumes of steel to the European Union. However, the carbon intensity of Indian blast furnace-based steel production is substantially higher than EU producers operating more efficient or cleaner technologies. This difference directly increases the future CBAM cost burden on Indian shipments. As global buyers increase their scrutiny of carbon emissions, Indian steel manufacturers must accelerate decarbonization pathways to remain competitive.
Overview of CBAM
The Carbon Border Adjustment Mechanism is designed to prevent carbon leakage i.e., companies shifting production to countries with weaker climate policies. CBAM levels the playing field by imposing a carbon price on imported goods equivalent to the EU Emissions Trading System (ETS) price.
CBAM Timeline
Transitional Phase (Oct 2023 – Dec 2025)
- Importers must report quarterly embedded emissions.
- No financial payment yet.
- Indirect emissions included.
- Non-EU producers must supply activity-level data
Full Implementation (Jan 2026 onward)
- Importers must purchase and surrender CBAM certificates.
- Certificate price = EU ETS carbon price (weekly average).
- Annual reporting and verification mandatory.
Impact on Global Exporters
- Increases cost of carbon-intensive exports to the EU
- Drives adoption of green steel, renewable energy, and decarbonization
- Requires supply chain transparency and cooperation with EU importers
- Reduces competitiveness for products with high embedded emissions
How Emissions Are Calculated
- Based on specific installation-level data (preferred)
- Default values allowed temporarily if data unavailable
- Direct emissions: production process-related
- Indirect emissions: electricity consumed
- Carbon price paid locally is deducted from the CBAM cost if verifiable
India’s Steel Export Exposure to the EU
India exports a diverse mix of steel products to the EU, flat products like hot-rolled and cold-rolled coils, long products such as wire rods and rebars, and semi-finished steel. These exports have been attractive for European buyers because of India’s competitive pricing, large production scale, and stable supply relationships.
However, with the EU’s Carbon Border Adjustment Mechanism (CBAM) becoming fully operational from 2026, India’s steel shipments face increased scrutiny because they are more carbon-intensive compared with many global competitors.
Why Indian Steel Is Considered High-Emission?
Several structural factors make India’s steel production more carbon-heavy:
- Heavy reliance on coal-based technologies: A major share of India’s steel is produced using:
- The blast furnace, basic oxygen furnace (BF-BOF) route, which emits significant CO₂.
- Coal-based Direct Reduced Iron (DRI) units, which are among the most carbon-intensive steelmaking methods globally.
- Limited scrap for Electric Arc Furnaces (EAFs): Clean-energy EAFs rely on scrap steel. India has a scrap shortage, which limits faster transition to low-emission EAF technology.
- Growing demand but slower decarbonisation: India is the world’s largest producer of DRI and continues to expand capacity. This makes decarbonisation harder in the short term.
Estimated CBAM Impact on Indian Steel
With the EU’s carbon price expected to hover around €80-100 per tonne of CO₂ in 2025-26, Indian steel which typically carries 2.3-2.8 tonnes of CO₂ for every tonne produced, will face a significant cost hit.
This translates into an additional €180-250 per tonne of Indian steel entering the EU market.
High-Risk Export Segments Under CBAM
- Flat Steel Products
- Hot-rolled coils (HRC)
- Cold-rolled coils (CRC)
- Coated/galvanised steel
These have medium to high carbon intensity and are widely purchased by EU manufacturing sectors.
- Structural Steel
- Used in construction, infrastructure, renewables, and industrial fabrication.
- EU buyers increasingly require low-carbon or certified green steel, making Indian supplies vulnerable.
- Wire Rods and Rebars
- Especially where the project requires EU-specific certifications.
- Higher embedded carbon may disqualify Indian suppliers or make them cost-uncompetitive after CBAM.
Exposure Challenges for Indian Exporters
CBAM introduces multiple layers of risk beyond emissions alone:
- Rising Landed Cost in the EU
- Importers will need to buy CBAM certificates based on embedded emissions.
- This will increase the total cost of Indian steel in the European market.
- India’s price advantage could shrink or disappear.
- Loss of Orders to Cleaner Suppliers
EU buyers might shift to:
- Japan
- South Korea
- EU domestic producers
- Turkey (EAF-based)
- These countries offer lower-carbon steel, reducing CBAM liability.
- Procurement Pressure from European Customers
- EU buyers are actively seeking low-carbon supply chains.
- Indian mills may face demands for:
- Product-level emissions data
- Third-party verification
- Green steel variants
- Long-term decarbonisation commitments
Emissions Intensity of Indian Steel vs. Global Benchmarks
The carbon footprint of steel depends heavily on how the steel is produced. Globally, there are four major steelmaking routes, each with very different levels of CO₂ emissions. With the world now moving quickly toward low-carbon steel, these differences are creating a clear line between “cleaner” producers and “high-emission” producers.
Below is a deeper explanation of each route and where India stands :
- BF – BOF (Blast Furnace – Basic Oxygen Furnace)
Typical emissions: 2.2 – 2.8 tCO₂ per tonne of crude steel
India’s level: Towards the upper end of the range
Why so high?
- BF-BOF uses coal/coke as a reducing agent to turn iron ore into molten iron.
- India’s iron ore often has higher impurities, requiring more energy to process.
- Many plants operate with lower scrap input, keeping emissions high.
- Energy efficiency and process integration in Indian mills lag behind top global producers in Japan, Korea, and the EU.
- DRI (Direct Reduced Iron) – Coal Based
Typical emissions: 2.4 – 3.0 tCO₂/tcs
India: Largest producer of coal-based DRI in the world
Why coal-based DRI is so carbon-heavy:
- Coal is used instead of natural gas, resulting in much higher CO₂ output.
- Many Indian DRI plants use rotary kilns, which have lower efficiency and higher losses.
- Older technology and lack of fully optimized heat recovery systems push intensity even higher.
Impact on exposure:
Coal DRI is one of the most penalized steelmaking routes under CBAM because of extremely high embedded emissions.
- DRI (Gas-Based) – Natural Gas
Typical emissions: 1.4 – 1.8 tCO₂/tcs
India: Very limited gas-based DRI capacity
Why cleaner?
- Natural gas produces far less CO₂ compared to coal.
- Process integration and quality of output allow higher efficiency.
- Countries like the Middle East, where gas is abundant, specialize in this route.
India’s challenge:
High LNG prices and inconsistent gas availability make large-scale gas DRI challenging.
- EAF (Electric Arc Furnace) – Scrap Based
Typical emissions: 0.3 – 0.5 tCO₂/tcs
India: Restricted by low scrap availability
Why EAF is the global green steel benchmark:
- Uses recycled scrap steel, not iron ore.
- Requires electricity rather than coal.
- Emissions can drop further if powered by renewables.
Why India cannot scale EAF rapidly:
- Domestic scrap generation is low due to:
-
- Lower vehicle turnover
- Longer product lifespans
- Large unorganized recycling sector
- Imported scrap is expensive and volatile.
Potential Financial Impact of CBAM on Indian Steel Exporters
The Carbon Border Adjustment Mechanism (CBAM) will introduce a direct carbon-linked cost on steel exports to the European Union. For Indian exporters, the financial impact will be significant due to the relatively high carbon intensity of domestic steel production.
Key Determinants of CBAM Cost :
CBAM liability for any steel product exported to the EU will depend on three primary factors:
- Embedded Carbon Emissions
- The amount of CO₂ emitted per tonne of steel during production, based on the specific production route (BF-BOF, DRI, EAF).
- EU ETS Carbon Price
- CBAM mirrors the EU Emissions Trading System (ETS) price. Historically, EU ETS prices have ranged between €60 and €100 per tonne of CO₂, with expectations of continued volatility and upward bias.
- Availability of Verified Emissions Data
– Exporters with verified, product-level emissions data can declare actual emissions.
– In the absence of approved data, default CBAM values apply, which are typically higher and penalize exporters further.
Impact Zones Across Product Categories
High impact products
- Commodity flat steel (HRC, CRC)
- Semi-finished products (billets, blooms, slabs)
- These products operate on thin margins, making them highly vulnerable to CBAM-induced cost increases.
Moderate impact products
- Specialty long products
- Value-added structural steel with moderate processing premiums
While impacted, partial cost pass-through may be possible depending on buyer relationships and application criticality.
Low impact products
- High-value engineered components
- Downstream fabricated products where steel cost is a smaller share of total product value
These segments are relatively insulated, as CBAM cost forms a smaller proportion of final pricing.
Strategic Implication for Indian Exporters
CBAM transforms carbon intensity into a direct trade cost. Indian steel exporters must urgently:
- Improve emissions transparency and reporting
- Invest in decarbonisation pathways
- Reposition exports toward higher-value, lower carbon-sensitive products
Without such measures, sustained access to the EU steel market will become increasingly challenging.
Green Steel: Definitions, Technologies and Global Benchmarks
What Is Green Steel?
Green steel broadly refers to steel produced with significantly lower greenhouse gas emissions than conventional steelmaking routes. There is currently no single global definition, but green steel is typically benchmarked against traditional coal-based production and assessed using emissions intensity.
Key Green Steel Production Pathways
- Electric Arc Furnace (EAF) Using Scrap
- Produces steel by melting recycled scrap.
- Emissions depend largely on the electricity source.
- When powered by renewable energy, emissions are very low.
- Best-in-class EAFs can approach near net-zero emissions using renewable power and low-carbon electrodes.
- Hydrogen-Based DRI (H-DRI) + EAF
- Uses green hydrogen to reduce iron ore instead of coal or gas.
- Followed by melting in an electric arc furnace.
- Can achieve very low direct emissions if hydrogen is produced from renewable energy.
- Considered the most future-ready green steel pathway.
- Gas-Based DRI + EAF (Low-Carbon Gas)
- Uses natural gas instead of coal for iron ore reduction.
- Emissions are lower than coal-based DRI, but higher than hydrogen routes.
- Often viewed as a transition pathway toward hydrogen-based steelmaking.
- BF-BOF with Carbon Capture, Utilisation and Storage (CCUS)
- Traditional blast furnace route with emissions captured and stored or reused.
- Technically feasible but capital-intensive.
- Can reduce emissions but is generally considered lower-carbon, not fully green steel.
India’s Steel Landscape: Production Routes, Players and Emissions Profile
India’s steel sector is a cornerstone of the economy and globally significant, but it faces structural challenges as the world moves toward decarbonisation. Below is a clear, data-backed picture of how steel is made in India, who the key players are, and what emissions look like compared with global standards.
Why India’s Emissions Are High
India’s steel emissions sit above global norms mainly for three reasons:
- Heavy use of coal – The country has the largest share of coal-based DRI capacity in the world, which contributes significant CO₂ emissions at the ironmaking stage.
- Limited use of scrap- Despite producing 25-30 million tonnes of steel scrap annually, only about 20-25% is recycled. This limits expansion of low-emission EAF capacity.
- Coal-heavy BF-BOF capacity expansion – India accounts for around 57% of new coal-based BOF capacity under development globally, meaning new steel projects continue to be carbon-intensive.
Major Players in India’s Steel Sector
India’s steel ecosystem includes large integrated producers and many secondary/DRI-based firms.
Integrated Leaders:
- Tata Steel
- JSW Steel
- SAIL (Steel Authority of India Ltd)
- AM/NS India
These companies dominate high-value flat products, exports, and investment in cleaner technologies and are the most exposed to carbon costs like CBAM.
Secondary and mid-tier players:
- Smaller DRI/EAF combinations
- Focus largely on long products, rod, and construction steel
- Higher average emissions due to smaller, less efficient units
2025 policy discussions are exploring tailored emission targets for large producers to encourage practical decarbonisation while balancing competitiveness.
India-specific challenges and enablers for Green Steel
India’s transition to green steel is shaped by a unique combination of resource constraints, cost pressures, and structural realities, alongside emerging policy support and industrial capability. While the direction is clear, the pace of transition will depend on how effectively these challenges are addressed and enablers scaled.
Key Challenges for Green Steel in India :
- Limited scrap availability- Low domestic scrap generation and weak collection/processing infrastructure restrict rapid expansion of scrap-based EAF steel.
- High cost of green hydrogen- Green hydrogen remains expensive due to high renewable power costs, electrolyser CAPEX, and lack of large, guaranteed demand.
- Natural gas constraints- Limited domestic gas supply and volatile LNG prices reduce the viability of gas-based DRI as a large-scale solution.
- High capital investment needs- Transitioning to low-carbon steel requires significant CAPEX for new furnaces, electrification, renewable energy, hydrogen systems, and CCUS.
- Gaps in emissions measurement and verification- Many smaller mills lack robust systems for emissions tracking, reporting, and third-party verification, increasing CBAM risk.
Key enablers & opportunities for green steel in india :
- Rapidly expanding renewable energy capacity- Growing solar and wind power can directly reduce emissions from EAFs and downstream steel operations.
- Policy momentum toward decarbonisation- Government initiatives, emerging green steel definitions, and proposed incentives support gradual transition.
- Strong large-scale steel producers- Leading Indian steelmakers have the scale, technical capability, and global partnerships to pilot green technologies.
- Rising global demand for low-carbon steel- EU buyers and global OEMs increasingly prefer low-emission steel and are open to long-term partnerships.
- Scope for phased transition- Combination of efficiency improvements, renewable integration, gas-based DRI, and hydrogen pilots allows step-by-step decarbonisation.
Policy, Finance, and Ecosystem Support Required in India
Between 2025 and 2030, India’s move toward green steel will happen in clear steps, guided by CBAM timelines and technology readiness. In 2025, the priority will be to build the foundations, setting up CBAM-compliant emissions tracking, creating a national carbon accounting framework, and starting pilot projects for hydrogen-based DRI and scrap-based EAF steel. Engagement with EU buyers and access to green finance will begin alongside these efforts.
In 2026, when CBAM starts applying financial charges, the focus will shift to managing immediate cost pressures while continuing the transition. This will include temporary export support linked to decarbonisation plans, faster development of scrap collection and recycling systems, securing renewable power and gas supplies, and finalising hydrogen supply arrangements.
From 2027 onwards, the emphasis will move to scaling up. Low-carbon steel production will expand, hydrogen hubs will come online, emissions verification will strengthen, and certified green steel products will enter the market. By 2029-2030, India’s steel emissions intensity is expected to fall significantly, positioning the country as a competitive supplier of low-carbon steel in global markets.
Government Policy & Initiatives for Green Steel in India
By 2025, India has begun building a clear policy framework to support the steel industry’s transition toward lower emissions, while safeguarding long-term competitiveness in global markets.
Greening the Steel Sector Roadmap – The Ministry of Steel has outlined a national roadmap focused on improving energy efficiency, increasing renewable energy use, and gradually shifting toward cleaner steelmaking routes. Emerging technologies such as green hydrogen, carbon capture, and alternative reductants are recognised as critical for long-term decarbonisation.
Green Steel Classification Framework – India has introduced a carbon-intensity-based rating system to define and benchmark green steel. This enables product differentiation, supports emissions transparency, and helps exporters align with international carbon and certification requirements.
National Green Hydrogen Mission – Green hydrogen is being positioned as a key enabler for deep decarbonisation in steel. The mission supports pilot projects, renewable capacity expansion, and early adoption of hydrogen-based ironmaking technologies.
Green Steel Mission & Financial Support – A dedicated Green Steel Mission is under development to provide concessional finance, risk-sharing mechanisms, and targeted incentives, particularly for capital-intensive transition investments and smaller producers.
Carbon Credit Trading Framework – India’s domestic carbon credit trading system will allow steel producers to monetise verified emissions reductions, encouraging early action and familiarising industry with carbon pricing mechanisms.
Scrap Recycling & Circular Economy Policies – Policies aimed at improving scrap collection and recycling are strengthening the foundation for lower-emission electric arc furnace production and reducing dependence on coal-based routes.
PLI and Industrial Modernisation Schemes – Production Linked Incentive schemes support investment in modern, high-value steel production, indirectly improving energy efficiency and emissions performance.
Market Creation & State-Level Support – The government is exploring the use of green-rated steel in public infrastructure projects, while several states are rolling out hydrogen, renewable energy, and green manufacturing policies to build regional ecosystems.