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European Union

EU's Carbon Border Adjustment Measures Pose Threat to Indian Exports

Strategic Insights

— 2 min read

India and the European Union are on the cusp of finalizing their free trade agreement, but the inclusion of the EU's Carbon Border Adjustment Measures (CBAM) poses a significant threat to India's aluminum and steel exports, which are set to increase their compliance costs by up to 90%. Despite India's efforts to comply with the EU's climate regulations, the country's exports will face a price gap due to the difference in carbon prices between the two regions. The timing of the CBAM's implementation will also exacerbate the issue, as India will have to factor in compliance costs from January 2026, while the country's carbon credit trading scheme (CCTS) will not begin until October 2026, leaving a 10-month gap where minor adjustments will not make a difference.

Key Takeaways:

  • The EU's CBAM regulation will increase compliance costs for India's aluminum and steel exports by up to 90%.
  • India's carbon credit trading scheme (CCTS) will begin in October 2026, while the CBAM will be implemented from January 2026, creating a 10-month gap where minor adjustments will not be effective.
  • The EU's carbon price under the EU's Emissions Trading System (EU ETS) is typically €60-90 per tonne of carbon dioxide, while India's carbon price under CCTS is expected to be below €10.
  • The EU has indicated that carbon prices paid under India's CCTS will be deducted from the CBAM price, but this may not include other costs and taxes paid in India.
  • The EU's CBAM regulation is part of a series of measures enacted as part of the "EU green deal", which also includes the EU deforestation regulation (EUDR) and the corporate sustainability due diligence directive (CS3D).
  • The compliance burdens of the EU's recent regulations will be immense, and India should consider participating in international efforts to address the interface of trade and the climate crisis.
  • India needs to find the correct balance in the FTA negotiations with the EU to ensure that the strategic relationship has at its core mutual respect and equity, and respect for multilateral principles.

Statistics:

  • India's aluminum and steel exports will face compliance costs of up to 90% due to the EU's CBAM regulation.
  • India's carbon price under CCTS is expected to be below €10.
  • The EU's carbon price under the EU ETS is typically €60-90 per tonne of carbon dioxide.
  • The EU has indicated that carbon prices paid under India's CCTS will be deducted from the CBAM price.
  • India's carbon credit trading scheme (CCTS) will begin in October 2026.
  • The EU's CBAM regulation will be implemented from January 2026.

Sources:

  • Hindustan Times, "EU's Carbon Border Adjustment Measures Pose Threat to Indian Exports"
  • European Union, "Carbon Border Adjustment Mechanism"
  • Government of India, "Greenhouse Gas Emission Intensity (GEI) Target Rules, 2025"
  • United Nations Framework Convention on Climate Change (UNFCCC), "Paris Agreement"

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