CBAM Impact on Indian Steel Exports

CBAM Impact on Indian Steel Exports: A Comprehensive Sector Analysis

The European Union’s Carbon Border Adjustment Mechanism (CBAM) represents the most significant trade policy shift affecting India’s steel industry in decades. With India exporting approximately USD 7-8 billion worth of iron and steel products to the EU annually — making Europe one of the top three destinations for Indian steel — the financial and strategic implications of CBAM are substantial. This analysis examines emission profiles, duty calculations, reporting requirements, and actionable strategies for Indian steel producers navigating the new carbon border regime.

India’s Steel Export Landscape and EU Exposure

India is the world’s second-largest crude steel producer, with output exceeding 140 million tonnes per annum (MTPA). Of this, approximately 8-10 MTPA is exported, with the EU absorbing a significant share across product categories including hot-rolled coils (HRC), cold-rolled coils (CRC), wire rod, rebars, and stainless steel flat products. Key exporting companies include Tata Steel, JSW Steel, SAIL, AMNS India (ArcelorMittal Nippon Steel), and Jindal Stainless.

The EU’s CBAM transitional period began on 1 October 2023, requiring quarterly emissions reporting without financial obligations. From 1 January 2026, importers must purchase CBAM certificates corresponding to the embedded emissions of imported goods. The financial phase coincides with the progressive phase-out of free EU ETS allowances for domestic producers, reaching full CBAM application by 2034.

For Indian steel exporters, the exposure is not uniform. The emission intensity — and therefore the CBAM duty — varies dramatically depending on the production route, energy source, and operational efficiency of each installation.

Emission Intensity: BF-BOF vs EAF Routes

The two dominant steelmaking routes carry fundamentally different carbon footprints:

• Blast Furnace – Basic Oxygen Furnace (BF-BOF): The integrated route, which reduces iron ore using coke in a blast furnace before refining in a BOF, accounts for approximately 55-60% of India’s steel production. Emission intensity typically ranges from 2.0 to 2.5 tonnes of CO2 per tonne of crude steel (tCO2/t), depending on coke rate, sinter ratio, blast furnace efficiency, and the use of pulverised coal injection (PCI). Indian BF-BOF plants average approximately 2.2 tCO2/t, compared to the EU average of roughly 1.8-1.9 tCO2/t for similar installations.
• Electric Arc Furnace (EAF) / Induction Furnace (IF): The secondary route, melting scrap steel or direct reduced iron (DRI) using electrical energy, accounts for approximately 40-45% of Indian production. Emission intensity ranges from 0.4 to 0.8 tCO2/t when using predominantly scrap, though Indian EAFs that rely heavily on coal-based DRI (sponge iron) can reach 1.2-1.8 tCO2/t. The wide range reflects both the DRI-to-scrap ratio in the charge mix and the carbon intensity of grid electricity consumed.

The EU product benchmark for hot metal (the reference for free allocation under EU ETS) is approximately 1.52 tCO2/t for the BF-BOF route. Any emissions above this benchmark — and above the share still covered by free allocation — attract CBAM duties.

CBAM Duty Calculation: A Worked Example

The CBAM duty per tonne of imported steel is calculated as:

CBAM Duty = (Embedded Emissions – EU Free Allocation Benchmark) x EUA Price

During the transitional phase-out of free allocation (2026-2034), the free allocation percentage decreases annually. By 2034, no free allocation remains, and the full embedded emissions are subject to CBAM. For this worked example, we assume an intermediate scenario where free allocation covers approximately 40% of the EU benchmark.

Example: BF-BOF steel, 2.2 tCO2/t embedded emissions

• EU benchmark for free allocation: 1.52 tCO2/t
• Free allocation at 40%: 1.52 x 0.40 = 0.608 tCO2/t deducted
• Net emissions subject to CBAM: 2.2 – 0.608 = 1.592 tCO2/t
• At EUA price of EUR 65/tCO2: 1.592 x 65 = EUR 103.48 per tonne of steel

For Indian BF-BOF steel priced at approximately EUR 500-600/t (FOB), a duty of EUR 100+ represents a 17-20% cost surcharge — a potentially trade-altering margin in a competitive global market.

Duty Estimates by EUA Price and Production Route

* Net CBAM emissions = Embedded emissions minus free allocation (assumed 40% of 1.52 tCO2/t benchmark = 0.608 tCO2/t). ** Where embedded emissions fall below the free allocation deduction, duty is zero.

Reporting Requirements: What Indian Steel Producers Must Do

Under CBAM, the reporting obligation formally falls on the EU-based importer (the “authorised CBAM declarant”). However, the data must originate from the overseas installation — meaning Indian steel producers must provide:

• Installation-level emissions data: Direct (Scope 1) emissions from the steelmaking process, covering all emission sources including coke ovens, sinter plants, blast furnaces, BOFs or EAFs, continuous casting, and on-site power generation.
• Production data: Tonnes of each CN-code product produced, with clear attribution of emissions to specific products where multiple products are manufactured at the same installation.
• Precursor emissions: Where the steel installation consumes precursors (e.g., pig iron, DRI, or ferro-alloys from a different installation), the embedded emissions of those precursors must also be reported.
• Verification: From 2026, emissions data must be verified by an accredited verifier under rules equivalent to the EU ETS Monitoring and Reporting Regulation (MRR). India’s Bureau of Energy Efficiency (BEE) and accredited energy auditors may play a role, though the EU Commission’s implementing acts will define acceptable third-country verification standards.

Default values vs actual values: If an Indian producer fails to provide installation-level data, the EU importer must use default values. These defaults are set at the average of the 10% worst-performing EU installations — typically 2.8-3.0 tCO2/t for crude steel — which would inflate CBAM liability by 30-50% compared to actual Indian BF-BOF emissions. For EAF producers, the penalty of using defaults is even more severe, potentially multiplying true emissions by a factor of three to five. Investing in robust MRV (Monitoring, Reporting, and Verification) systems is therefore not merely a compliance exercise but a direct cost-saving measure.

The Carbon Price Deduction: India’s CCTS and Domestic Carbon Pricing

CBAM allows a deduction for any carbon price “effectively paid” in the country of origin, provided it is explicitly linked to greenhouse gas emissions and not rebated upon export. India’s Carbon Credit Trading Scheme (CCTS), notified under the Energy Conservation (Amendment) Act 2022, is designed as a cap-and-trade system for designated consumers, including the steel sector. If operationalised and recognised by the EU, the CCTS compliance cost could be deducted from the CBAM duty.

However, several uncertainties remain: the CCTS carbon price is expected to be significantly lower than the EUA price (potentially INR 500-1,500/tCO2 vs EUR 50-80/tCO2); the EU has not yet published criteria for recognising third-country carbon pricing schemes; and the CCTS is still in its early implementation phase. Indian producers should maintain detailed records of all carbon-related levies paid — including coal cess, renewable purchase obligations (RPO) costs, and PAT (Perform, Achieve, Trade) scheme compliance costs — to support future deduction claims.

Strategic Options for Indian Steel Producers

Indian steel companies face a strategic choice: absorb the CBAM cost, pass it through to EU buyers, or invest in decarbonisation to reduce embedded emissions. The most impactful strategies include:

• Shift to EAF steelmaking: The single most effective route to reducing CBAM exposure. Scrap-based EAF steel carries 70-80% lower emissions than BF-BOF. India’s National Steel Policy targets 40% EAF share by 2030, supported by growing domestic scrap availability and the planned National Scrap Recycling Policy. Companies like JSW Steel are already expanding EAF capacity.
• Green hydrogen DRI: Replacing coal-based DRI with hydrogen-reduced DRI (H-DRI) can cut DRI-stage emissions by up to 95%. While green hydrogen costs remain high (USD 4-6/kg in India), declining electrolyser costs and India’s ambitious National Green Hydrogen Mission (5 MTPA by 2030) make this a viable medium-term strategy. ArcelorMittal Nippon Steel India (AMNS) has announced H-DRI pilot projects at Hazira.
• Renewable energy procurement: For EAF producers, switching to renewable electricity via open-access PPAs or captive solar/wind can reduce Scope 2 emissions to near zero. Group captive solar at INR 3-4/kWh is already cost-competitive with grid power in many Indian states.
• Blast furnace efficiency improvements: Incremental measures — including top-pressure recovery turbines (TRT), coke dry quenching (CDQ), waste heat recovery, increased pellet-to-sinter ratio, and higher PCI rates — can reduce BF-BOF emissions by 10-15%. While insufficient alone, these measures buy time while larger capital projects are developed.
• Carbon capture, utilisation, and storage (CCUS): Emerging CCUS technologies, such as post-combustion capture on blast furnace gas or top-gas recycling, could abate 50-90% of BF emissions. However, CCUS is capital-intensive, and India’s geological storage potential (primarily in the Deccan Traps and sedimentary basins) requires further characterisation.
• CCTS carbon pricing offset: Active participation in India’s CCTS — and robust documentation of compliance costs — positions producers to claim deductions against CBAM duties once bilateral recognition mechanisms are established.

Market Implications and Competitive Positioning

CBAM fundamentally changes the competitive calculus for Indian steel in Europe. BF-BOF producers with high emission intensities may find EU markets uneconomical and redirect exports to non-CBAM jurisdictions (Southeast Asia, Middle East, Africa). Conversely, Indian EAF producers — particularly those using renewable energy and high scrap ratios — could gain market share as their CBAM liability is minimal.

The longer-term implication is that CBAM accelerates the bifurcation of the global steel market into “green” and “conventional” segments, with price premiums for low-carbon steel already emerging. Indian producers that invest early in decarbonisation will be better positioned not only for EU market access but for the growing number of jurisdictions considering similar carbon border measures (the UK CBAM, Australia’s proposed mechanism, and Canada’s parallel regime).

How RSustain Carbon Can Help

Navigating CBAM compliance requires accurate emissions quantification, strategic scenario modelling, and robust reporting systems. RSustain Carbon offers specialised tools and advisory services for Indian steel producers:

• CBAM Compass — Interactive guidance tool that walks you through the CBAM regulation, identifies your reporting obligations by CN code, and maps your compliance timeline from transitional reporting to full financial obligations.
• CBAM Duty Calculator — Model your CBAM duty exposure under multiple scenarios: different EUA price trajectories, free allocation phase-out schedules, actual vs default emission values, and domestic carbon price deductions. Generate boardroom-ready cost impact reports.
• Carbon Desk Advisory — Our carbon markets team provides end-to-end support including installation-level emissions quantification (aligned with EU MRR methodology), MRV system design, third-party verification coordination, and strategic decarbonisation roadmapping. Contact us at carbon@rsustain.com to schedule a consultation.