CBAM and Indian Exports: A Sector-by-Sector Exposure Analysis
On 1 January 2026, the European Union’s Carbon Border Adjustment Mechanism entered its definitive period. After two and a half years of transitional reporting, EU importers must now purchase CBAM certificates corresponding to the embedded emissions of goods imported from countries without equivalent carbon pricing. For Indian industry, this is no longer a future regulatory risk. It is a present-day cost that will directly affect the competitiveness of some of India’s most important export sectors. This analysis quantifies the exposure, explains the mechanics, and sets out what Indian exporters must do to manage the impact.
What CBAM Is and Why It Matters for India
CBAM is, at its core, a carbon tariff. It requires EU importers to pay a charge equivalent to the carbon price that would have been paid had the goods been produced within the EU under the EU Emissions Trading System (EU ETS). The stated objective is to prevent “carbon leakage” — the relocation of production from the EU to countries with less stringent climate policies, which would undermine the EU’s climate ambitions without reducing global emissions.
The mechanism works by embedding a carbon cost into the price of imported goods. This cost is calculated based on the actual embedded emissions of the specific goods being imported, multiplied by the EU ETS carbon price, minus any carbon price already paid in the country of origin.
For India, this matters enormously. India is one of the largest exporters of CBAM-covered goods to the EU. The country’s steel, aluminium, cement, and fertiliser sectors have significant EU-bound trade flows, and the emission intensity of Indian production is, on average, higher than EU benchmarks due to the coal-dominated energy mix and, in some cases, older process technologies.
The Six Covered Sectors
CBAM currently covers six product categories, defined by their CN (Combined Nomenclature) codes:
- Cement: Clinker, Portland cement, aluminous cement, and other hydraulic cements
- Iron and steel: A broad range of products from pig iron and ferro-alloys through to flat-rolled products, tubes, and stainless steel
- Aluminium: Unwrought aluminium, aluminium bars, rods, profiles, wire, plates, sheets, strip, foil, tubes, and pipes
- Fertilisers: Nitric acid, ammonia, potassium nitrate, and nitrogenous mineral or chemical fertilisers including urea and ammonium nitrate
- Hydrogen: Hydrogen and hydrogen-derived products
- Electricity: Electrical energy (relevant primarily for countries with direct electricity interconnection with the EU)
The European Commission has signalled that the scope may expand in the future to include organic chemicals, polymers, and potentially downstream manufactured goods. For now, the six sectors above are the compliance perimeter.
Sector-by-Sector: India’s Exposure
Iron and Steel: The Largest Exposure
India’s steel exports to the EU represent the single largest CBAM exposure for any Indian sector. In recent fiscal years, India has exported approximately $7-8 billion worth of iron and steel products to the EU, making Europe one of India’s top steel export destinations.
The exposure is compounded by the emission intensity of Indian steel production:
- Blast furnace/basic oxygen furnace (BF-BOF) route: India’s BF-BOF mills produce steel at an average emission intensity of approximately 2.5-2.8 tCO2 per tonne of crude steel. The EU benchmark for hot metal production is significantly lower, reflecting the higher efficiency of European blast furnaces and the lower coal quality factors.
- Electric arc furnace (EAF) route: Indian EAF steel is produced at approximately 0.8-1.2 tCO2 per tonne, depending on the electricity source. EAF mills using captive coal-fired power will be at the higher end; those procuring renewable electricity will be lower.
- Induction furnace route: India’s large induction furnace sector (approximately 30% of total steel production) operates at emission intensities broadly similar to EAF, but with greater variability in input material and energy source.
At a hypothetical EU ETS price of EUR 65-75 per tonne of CO2 (the approximate range in early 2026), the CBAM cost for BF-BOF steel could be in the range of EUR 160-210 per tonne of steel — a very material cost adder for products with typical export values of EUR 500-800 per tonne. For EAF steel using renewable electricity, the CBAM cost could be as low as EUR 50-70 per tonne, creating a significant competitive advantage for producers that have invested in decarbonisation.
The strategic implication is stark: Indian steel exporters that continue with coal-intensive production face a structural cost disadvantage in the EU market that will only grow as the EU ETS price rises and free allocation to EU producers is phased out (100% phase-out by 2034). Those that invest in scrap-based EAF production powered by renewable electricity will have a competitive moat.
Aluminium: Where the Grid Matters Most
India exports approximately $1.0-1.2 billion of aluminium products to the EU annually. India is the world’s second-largest aluminium producer, and the sector is one of the most electricity-intensive industries in the economy.
Aluminium smelting is dominated by the Hall-Heroult electrolytic process, where the primary emission source is the electricity consumed in the potline. In India, the vast majority of primary aluminium smelting is powered by captive coal-fired thermal power plants:
- Indian primary aluminium: Approximately 15-18 tCO2 per tonne of aluminium (including direct process emissions from anode consumption and indirect emissions from coal-fired electricity).
- EU benchmark: Approximately 6-8 tCO2 per tonne, reflecting the higher share of hydro and nuclear electricity in the European smelter fleet.
- Global best practice (hydro-powered smelters in Iceland, Norway, Canada): Approximately 2-4 tCO2 per tonne.
The emission intensity gap between Indian and European aluminium is among the widest of any CBAM-covered sector. At EUR 70/tCO2, the CBAM cost for Indian primary aluminium could exceed EUR 700 per tonne — on a product with an LME price of approximately $2,400-2,600 per tonne. This is a potential cost adder of 25-30%, which would make Indian aluminium exports to the EU commercially unviable without significant decarbonisation or carbon price offsets.
The solution path for Indian aluminium producers is clear but capital-intensive: transition captive power from coal to renewable electricity (solar, wind, or hybrid with battery storage), and invest in inert anode technology to eliminate process emissions from carbon anode consumption. Hindalco and Vedanta have both announced renewable energy procurement plans, but the pace of transition needs to accelerate significantly to maintain EU market access.
Cement: Lower Direct Exposure, Higher Strategic Risk
India’s direct cement exports to the EU are relatively modest — cement is a low-value, high-weight product that does not travel well across oceans. However, the CBAM exposure for India’s cement sector operates through several indirect channels:
- Clinker exports: India does export clinker to certain markets, and any clinker destined for the EU (or re-exported to the EU via third countries) will attract CBAM charges.
- Downstream products: If CBAM scope expands to cover construction products, the embedded emissions of Indian cement used in manufactured goods could become relevant.
- Precedent for other jurisdictions: The UK is developing its own CBAM, and other countries (Canada, Australia, Japan) are considering similar mechanisms. India’s cement exports to these markets could face analogous border adjustments.
India’s cement sector emission intensity is approximately 0.58-0.65 tCO2 per tonne of cementitious product (including both process emissions from clinite calcination and combustion emissions from kiln fuel). The EU benchmark is approximately 0.55-0.60 tCO2 per tonne, so the gap is narrower than for steel or aluminium. This reflects the fact that Indian cement producers have been relatively efficient in clinker substitution (using fly ash and slag) and have invested in waste heat recovery and alternative fuels.
The primary CBAM risk for Indian cement is strategic rather than immediate: it signals a global direction of travel toward carbon border adjustments that will affect every trade partner, and it reinforces the need for cement companies to have verified, installation-level emission data ready for any market that implements similar mechanisms.
Fertilisers: The Urea Question
India is a major consumer of fertilisers but also has significant production capacity, particularly for urea. Fertiliser exports to the EU are covered under CBAM, and the emission profile of Indian urea production is relevant:
- Natural gas-based urea: India’s newer urea plants (including those built under the New Urea Policy) use natural gas as both feedstock and fuel, with emission intensities of approximately 1.5-1.8 tCO2 per tonne of urea.
- Naphtha-based urea: Older plants using naphtha as feedstock have significantly higher emission intensities, in the range of 2.2-2.8 tCO2 per tonne.
- Coal-based urea: A small number of plants using coal gasification have the highest emission intensities, exceeding 3.0 tCO2 per tonne.
The EU benchmark for ammonia production (the intermediate product in urea manufacturing) reflects the best available technology using natural gas, resulting in significantly lower emission intensities. Indian urea producers exporting to the EU will face CBAM charges proportional to the gap between their actual emissions and the EU benchmark.
The practical exposure is somewhat limited by the fact that India is a net importer of urea and most domestic production is consumed domestically under the subsidised pricing regime. However, some Indian chemical companies do export nitrogen-based fertilisers and intermediates (ammonia, nitric acid) to European markets, and these will face full CBAM charges.
Hydrogen: An Emerging Frontier
India’s National Green Hydrogen Mission targets 5 million tonnes per annum of green hydrogen production by 2030. While India’s hydrogen exports to the EU are currently negligible, the inclusion of hydrogen in CBAM has strategic implications:
- If India succeeds in scaling green hydrogen production (via electrolysis powered by renewable electricity), the embedded emissions will be near-zero, and CBAM charges would be minimal — making Indian green hydrogen competitive in the EU market.
- Conversely, grey hydrogen (produced from natural gas via steam methane reforming) or brown hydrogen (from coal gasification) would face substantial CBAM charges, reflecting their high emission intensity.
- The CBAM framework thus creates a powerful market incentive for India’s hydrogen strategy to prioritise green production pathways.
How the CBAM Duty Is Calculated
Understanding the CBAM calculation is essential for financial planning. The formula is straightforward in principle but demanding in data requirements:
CBAM duty = (Embedded emissions per tonne of product) x (EU ETS carbon price) – (Carbon price already paid in country of origin)
Breaking this down:
Embedded Emissions
For each product imported into the EU, the CBAM declarant must report the “embedded emissions” — the total GHG emissions (direct and, for some products, indirect) associated with the production of that specific product at the specific installation where it was produced. This is not a country average or a sector average; it is installation-level, product-specific data.
If the importer cannot provide verified actual emissions data, the EU will apply default values. During the transitional period, the default values were based on the average emission intensity of the exporting country. In the definitive period, the default values are set at a level that represents the worst-performing installations — typically the average of the top 10% most emission-intensive producers globally. Using default values is therefore a significant financial penalty.
EU ETS Carbon Price
The CBAM certificate price is calculated weekly based on the average closing price of EU ETS allowances (EU Allowances, or EUAs) on the European Energy Exchange. As of early 2026, EUA prices have been in the EUR 65-80 range, though they have shown significant volatility. Forward curve projections suggest prices could reach EUR 100+ by 2030 as the EU’s Fit for 55 package tightens the ETS cap.
Carbon Price Paid in Country of Origin
This is the critical variable for India. If the exporting country has an effective carbon pricing mechanism, and the producer can demonstrate that a carbon price has been paid on the emissions associated with the exported product, that amount is deducted from the CBAM duty.
This is where India’s CCTS becomes strategically significant. Once the CCTS is operational and designated consumers are paying an effective carbon price (either through purchasing CCCs or through the opportunity cost of surrendering them for compliance), Indian exporters should be able to claim a deduction from their CBAM liability.
The mechanics of how this deduction will work in practice are still being negotiated between India and the EU. Key questions include:
- Will the EU recognise India’s CCTS as an “effective carbon price” for CBAM deduction purposes?
- How will the CCC price be converted to euros for deduction calculation?
- Will the deduction apply at the installation level or at a national average level?
- What verification requirements will the EU impose on the Indian carbon price claim?
These are active diplomatic and technical discussions, and the outcome will materially affect the CBAM exposure of Indian exporters.
The CCTS-CBAM Strategic Link
India’s CCTS and the EU’s CBAM are often discussed as separate regulatory developments, but they are strategically intertwined. The relationship works in several dimensions:
CBAM as a Driver for CCTS Implementation
The CBAM creates a powerful incentive for India to implement an effective domestic carbon price. Without one, Indian exporters bear the full CBAM cost, and the revenue from that cost flows to the EU treasury rather than to the Indian exchequer. With an effective CCTS, the carbon price paid domestically reduces the CBAM liability dollar for dollar (in principle), and the revenue stays in India.
This “revenue repatriation” argument has been a significant factor in the Indian policy establishment’s thinking about CCTS implementation pace. Every year of delay in implementing an effective carbon price is a year in which Indian exporters pay carbon costs to the EU rather than to India.
Convergence of Data Requirements
Both CCTS and CBAM require installation-level GHG emission data, verified by accredited third parties, following internationally recognised methodologies. An entity that builds its MRV system for CCTS compliance will have 80-90% of the data infrastructure needed for CBAM reporting. This is a powerful argument for investing in MRV systems now, regardless of which regulatory requirement arrives first.
Price Discovery and Competitiveness
If the CCTS produces a domestic carbon price that is significantly below the EU ETS price (which is likely in the early years), Indian exporters will still face a net CBAM charge equal to the difference. However, this “top-up” will be much smaller than the full CBAM charge they would face without any domestic carbon price. Over time, as the CCTS matures and emission reduction targets tighten, the domestic carbon price may converge toward international levels, further reducing the CBAM exposure.
What Indian Exporters Must Do Now
The definitive period is here. EU importers are now required to purchase CBAM certificates, and they will pass the cost through to their suppliers. Indian exporters who are not prepared will lose business to competitors who can provide the required data and demonstrate lower emission intensity. Here is the action plan:
1. Establish Installation-Level Emission Data
This is the single most important action. Every installation that produces CBAM-covered goods for export to the EU must have:
- A complete GHG inventory covering all relevant emission sources (Scope 1 and, where required, Scope 2)
- Product-specific emission intensity calculations (tCO2e per tonne of product)
- Documentation of calculation methodologies, emission factors used, and data quality procedures
- Third-party verification by an accredited body
Without this data, your EU customers will be forced to use default emission values, which are set punitively high. Providing actual data is almost always cheaper than accepting defaults.
2. Understand the Authorized CBAM Declarant Process
Under CBAM, it is the EU importer (the “authorized CBAM declarant”) who is legally responsible for purchasing certificates. However, the importer depends entirely on the exporter for emission data. Exporters who make this process easy — by providing timely, verified, formatted data — will maintain their customer relationships. Exporters who create friction or delay will be replaced.
Engage with your EU customers now to understand their data requirements, reporting timelines, and preferred formats. The EU has published a standard communication template for CBAM data exchange between operators and importers; familiarise yourself with it.
3. Invest in Emission Reduction
Every tonne of CO2 you eliminate from your production process is a tonne of CBAM cost avoided, permanently. The economics of emission reduction should now include the CBAM cost saving as a benefit, which can significantly improve the payback period of decarbonisation investments.
For steel producers, this means accelerating the shift from BF-BOF to scrap-based EAF, sourcing renewable electricity, and exploring hydrogen-based direct reduction. For aluminium producers, it means transitioning captive power from coal to renewables. For fertiliser producers, it means improving energy efficiency and exploring green ammonia pathways.
4. Explore Strategic Options
Some Indian exporters may need to consider strategic responses beyond operational decarbonisation:
- Product mix optimisation: Shift EU-bound exports toward lower-emission product grades (e.g., EAF steel rather than BF-BOF steel for the EU market).
- Market diversification: Redirect high-emission products to markets that do not (yet) have carbon border adjustments, while focusing decarbonised production on the EU market.
- Supply chain restructuring: Source low-emission inputs (e.g., green electricity, scrap) specifically for EU-export production lines.
- Joint ventures: Partner with EU-based entities to establish production capacity within the EU, avoiding CBAM altogether for that portion of output.
RSustain’s CBAM Tools
RSustain has developed two purpose-built tools for Indian exporters navigating the CBAM landscape:
CBAM Compass
The CBAM Compass is an interactive assessment tool that evaluates your installation’s CBAM exposure across all covered sectors. It takes your production data, energy mix, and export volumes as inputs and produces a detailed exposure report including:
- Estimated CBAM cost per tonne of product exported to the EU
- Comparison against EU benchmarks and default values
- Identification of the highest-impact emission reduction opportunities
- Scenario modelling for different carbon price trajectories
CBAM Duty Calculator
The CBAM Duty Calculator provides a quick financial estimate of your annual CBAM liability based on your export volumes, product types, and emission intensity. It incorporates the latest EU ETS price data and can model the impact of different domestic carbon pricing scenarios under the CCTS.
Both tools are available at india.rsustain.com/tools and are free for initial assessment. For detailed advisory support, including MRV system design, verification coordination, and EU declarant communication, contact the RSustain Carbon Desk.
The Bottom Line
CBAM is not a hypothetical future risk. It is a live regulatory requirement that is adding real costs to Indian exports today. The magnitude of the cost varies enormously by sector and by individual installation — from potentially manageable for efficient EAF steel producers to potentially trade-prohibitive for coal-powered aluminium smelters.
The good news is that the cost is not fixed. It is directly linked to emission intensity, which is within the exporter’s control. Every investment in decarbonisation reduces the CBAM liability. Every improvement in data quality moves you from punitive default values to actual (and typically lower) emission factors. And every step India takes toward implementing an effective domestic carbon price under the CCTS reduces the net CBAM charge for all Indian exporters.
The exporters who engage with CBAM proactively — building data systems, investing in emission reduction, and working with their EU customers on compliance — will maintain and potentially strengthen their market position. Those who hope it will go away, or wait for the government to negotiate an exemption, will find themselves priced out of one of the world’s most valuable markets.
For a detailed CBAM exposure assessment, contact the RSustain Carbon Desk at carbon@rsustain.com or use our tools at india.rsustain.com/tools.