Indian steel companies exporting to the European Union (EU) are facing significant challenges as the implementation of the carbon border adjustment mechanism (CBAM) in 2026 threatens to dent their profitability by up to 30 per cent.
The CBAM, scheduled to come into effect in 2026, aims to shield domestic manufacturers in six sectors, including iron and steel, from cheap, non-compliant imports. Under the new tax regime, Indian steel exporters will be required to pay between €60 and €80 per tonne of carbon emissions, over and above the mandated standards, placing considerable financial strain on the industry.
Currently, India exports approximately 29 per cent of its total steel exports to Europe, with around 40 per cent of that expected to be affected by the CBAM, according to industry analysts. The carbon intensity of Indian steel producers, 2.6 tonnes of carbon emissions per tonne of crude steel, is notably higher than that of global counterparts by about 12 per cent, necessitating substantial investments in carbon reduction technologies to align with international standards.
The implementation of CBAM will entail a transition period from October 2023 to December 2025, during which European importers must disclose quarterly data on emission levels for imported products. However, from January 2026, full application of CBAM will commence, with carbon payments and third-party verification of emissions data becoming mandatory.
Major Indian steel companies such as Tata Steel, JSW Steel, and ArcelorMittal Nippon Steel India are expected to bear the brunt of the CBAM, as they will be compelled to divert significant resources towards carbon reduction technologies, deviating from their initial plans to achieve net-zero emissions.
An official from a steel company, speaking on condition of anonymity, highlighted that there could be a substantial 25–30 per cent impact on steel exporters, considering current steel pricing levels, post the implementation of CBAM.
In response to these challenges, Minister of Commerce and Industry Piyush Goyal is actively engaging with EU officials to address Indian exporters’ concerns. The Indian government is considering various measures, including incentives and subsidies, to encourage the adoption of cleaner technologies and reduce carbon footprint among industries.
Indian steel companies are also proactively pursuing carbon reduction initiatives, such as transitioning to renewable energy sources and implementing measures to control sulphur dioxide and nitrogen dioxide emissions.
Furthermore, the Indian government is exploring avenues to negotiate with the EU Commission for potential deferment or reduction of provisions under the CBAM guidelines. Domestically, discussions are underway to introduce carbon taxation on exports as a regulatory measure to mitigate the impact of CBAM on Indian industries.
As the deadline for CBAM implementation approaches, Indian steel exporters are navigating a complex landscape, balancing the imperative of environmental sustainability with the need to maintain competitiveness in the global market.
