Steel, aluminium and other carbon-intensive industries face higher compliance costs as India develops its domestic carbon market
Indian exporters of carbon-intensive goods are facing a new trade challenge as the European Union’s Carbon Border Adjustment Mechanism (CBAM) moves into its definitive phase, putting a price on emissions embedded in certain imports.
The mechanism, which took effect in January 2026, covers iron and steel, aluminium, cement, fertilisers, electricity and hydrogen. While the carbon charge is paid by EU importers, exporters can ultimately bear the economic impact through higher prices, lower margins or weaker competitiveness.
The issue is particularly significant for India’s metals industry. NITI Aayog estimates that the European Union accounts for around 22 per cent of India’s combined steel and aluminium exports, while the EU represents 39.3 per cent of India’s iron and steel trade exposure.
India’s finished-steel exports have nevertheless continued to grow. Exports reached 6.94 lakh tonnes in August 2026, valued at ₹5,541.2 crore, marking year-on-year increases of 31.3 per cent in volume and 41.5 per cent in value.
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The higher carbon intensity of Indian steel production, which relies heavily on coal-based processes, could increase the cost of meeting European requirements
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An ICRIER study published in June estimated that India’s steel exports to the EU could decline by 24 per cent under CBAM, based on its economic modelling
In response, India is expanding its domestic Carbon Credit Trading Scheme (CCTS), introduced in 2023. The scheme sets emissions-intensity targets for participating industries, allowing companies that outperform their targets to earn tradeable Carbon Credit Certificates.
More than 700 industrial units across seven emissions-intensive sectors are currently covered, according to the report. India is also preparing exporters and accredited verifiers for the EU system, with the first annual CBAM declarations for 2026 emissions due in September 2027.
The United Kingdom has separately agreed to recognise India’s CCTS under its planned carbon border mechanism from January 2027. However, the relief will depend on the carbon price actually paid in India.
For Indian exporters, the emerging priority is therefore not only carbon pricing but also reducing emissions through cleaner power, technology and industrial processes.
