Europe’s new Carbon Border Adjustment Mechanism (CBAM), famously known as “Europe carbon tax” is restructuring global steel trade and might hurt India’s steel exports to the EU as well as its long‑term competitiveness in international markets.

An industry which is heavily shouldering on coal and is emission-intensive, compared to its EU counterparts, currently under the lens as this could face higher compliance costs, lower margins, and pressure to upgrade technology, all while India’s domestic market absorbs the ongoing policy and pricing shocks.

Let’s uncover this on a deeper level.

What is Europe’s Carbon Tax (CBAM)?

The Carbon Border Adjustment Mechanism (CBAM) is a policy by the European Union that puts a carbon price on imports entering the EU so that foreign producers are treated similarly to EU producers under climate rules.

In simple terms:

CBAM = If you export to Europe, you pay for the carbon emissions involved in making your product.

The act was initiated in 2026 for sectors like steel, cement, aluminium, fertilisers, electricity, and hydrogen.

For steel, this gets serious. Each tonne of imported steel is assessed based on its embedded carbon emissions intensity, and an equivalent CBAM “certificate” cost is levied per tonne. If India has little or no formal carbon‑pricing system, the entire carbon cost is effectively passed on to the exporter in the form of higher duties.

How Is Indian Steel Exposed to CBAM?

India is one of the largest steel producers in the world and a significant exporter to Europe, a premium market. Before CBAM’s full rollout, India was shipping around 3.4–3.5 million tonnes of steel to the EU annually, which accounts for roughly 10–15% of its total steel exports.

Under CBAM, Indian steel exports face two direct hits:

• Higher effective export price: Each tonne of steel is charged a levy tied to the EU carbon price, which currently trades in the range of €60–80 (₹6,600 – ₹8,900 INR) per tonne of CO₂ (depending on the year and market conditions).
• Competitiveness erosion: European producers, who already pay for their emissions under the EU‑ETS, are effectively “carbon‑compliant” and thus face no extra CBAM cost when trading.

Indian steel, on the other side, must pay CBAM on top of domestic production costs, making it less competitive versus EU‑based and other CBAM‑aligned producers.

Estimates from Indian policy and industry‑focused studies suggest that CBAM‑linked costs could raise export costs per tonne of steel by the equivalent of 10–15% in some scenarios, depending on emission intensity and the prevailing EU carbon price. One modelling estimate cited in Indian official‑industry discussions projects a 10.5% drop in steel exports to the EU if no mitigation measures are taken.

Why Indian Steel Is Particularly on target?

Several reasons make Indian steel more sensitive to CBAM than many other exporting countries:

Coal‑intensive production: A large share of Indian steel is produced via primary steelmaking using blast furnaces fed by metallurgical coal, which emits significantly more CO₂ than routes such as electric arc furnaces (EAF) or hydrogen‑based direct‑reduction.

Average Indian steel plants emit around 2–2.3 tonnes of CO₂ per tonne of crude steel, compared with an average of roughly 1.4–1.6 tonnes for many EU producers.

Limited domestic carbon pricing: India currently does not have a nationwide, explicit carbon‑pricing or emissions‑trading system comparable to the EU‑ETS, so exporters cannot offset CBAM costs by showing that they already bear internal carbon costs. This means almost the full EU carbon price gets loaded onto export invoices.

Fragmented sector: About one‑third of India’s steel output comes from small and medium‑sized plants, which often lack the capital, technology, and data‑tracking systems needed to monitor and reduce emissions or comply with CBAM reporting. Big integrated players (the top 5–6 companies) can invest in cleaner blast furnaces, coke‑oven gas recovery, and partial EAF, but smaller players may struggle to keep up.

In practice, this implies that CBAM will likely hurt India’s steel exporters more than sectors with lower carbon intensity or more diversified green‑process routes.

Impact on Indian Steel Exports and Market Share

The immediate impact of CBAM is three‑fold:

1. Higher landed costs in Europe:

A CBAM‑linked levy effectively raises the price of Indian steel in the EU market, making it less attractive relative to EU‑produced steel and imports from countries that either have lower emission intensity or some form of domestic carbon‑pricing.
For buyers in Europe, this can mean a switch to EU‑based suppliers or to third‑country producers with lower carbon intensity (for example, Gulf producers investing in lower‑carbon‑intensity routes or countries with higher scrap‑based EAF production).

2. Volume pressure on EU‑bound exports:

Studies projecting the impact of CBAM on Indian steel exports to the EU estimate that, without adjustment, exports could fall by around 10–15% over the first few years of full CBAM implementation. This is not just a price effect; it combines outright loss of competitiveness, buyer preference for “greener” steel, and potential reputational risk for carbon‑intensive origins.

3. Product‑mix and value‑chain implications:

CBAM is product‑specific and can vary by steel grade and form. For example, high‑value automotive or premium specialty steels may face more stringent scrutiny because buyers in those segments are more sensitive to carbon footprints for ESG and regulatory reasons.

This could push Indian exporters either to:

• • Shift towards lower‑carbon‑intensity products (more EAF‑based, more scrap‑rich steel), or
  • Redirect some volumes away from the EU to other markets such as Southeast Asia, Africa, or the Middle East, where carbon‑linked trade barriers are weaker or absent.

Re‑routing exports, however, does not fully offset the loss of the EU—India’s most premium market—because the EU often pays higher prices and provides better terms for long‑term contracts.

Pressure on the Domestic Steel Market

The impact of CBAM is not limited to exports; it also spills over into the domestic Indian steel market:

• Redirected capacity: If EU‑bound exports shrink, more steel may be diverted to the domestic market, leading to temporary oversupply and downward pressure on prices or margins, especially for commodity grades.
• Policy and regulatory pressure:
  Facing criticism that CBAM is protectionist and discriminatory, Indian policymakers are being pushed to:
  • Develop a domestic carbon‑pricing or emissions‑trading system, or at least a carbon‑credit mechanism, to show that Indian producers are already bearing some carbon costs.
  • Introduce stricter emission norms, energy‑efficiency standards, and green‑technology incentives for steel, which in turn raises capital‑expenditure and operating costs for producers.

Strategic Responses Open to India

Policymakers, industry bodies, and large steel companies in India are already exploring several responses to mitigate the damage from Europe’s carbon tax. A few of these mentions are:

• Shifting primary steelmaking towards lower‑carbon‑intensity routes (more EAF, more hydrogen‑ready infrastructure, higher use of scrap and DRI).
• Investing in carbon‑capture readiness, and circular‑economy‑style scrap collection.
• Developing a domestic carbon‑pricing or tracking system
• Building robust emission‑tracking and product‑carbon‑footprint systems aligned with EU‑CBAM reporting formats.
• Growing exports to Africa, the Middle East, Southeast Asia, and Latin America, where demand for infrastructure‑grade steel is rising.
• Moving up the value chain with higher‑value, specialty, and coated steels that can command premium pricing even if CBAM‑linked costs are partially passed on.

Government support and engagement
India has publicly criticised CBAM as a trade‑discriminatory measure and has raised the issue at the WTO and bilateral levels. At the same time, the government is being pressed to:

• Provide targeted incentives (tax breaks, soft loans, R&D support) for green steel projects.
• Help small and medium steel producers meet CBAM‑linked reporting and emission‑reduction requirements.

Closing Notes

Long‑Term Outlook for Indian Steel and the EU Market

CBAM may not simply “hurt” Indian steel but could also act as a forcing function for structural change in the sector. If India responds by:

• Modernising its energy‑intensive base,
• Building a credible carbon‑pricing or tracking framework, and
• Improving product‑carbon‑footprint transparency,

This will position Indian steel as a lower‑carbon, more competitive supplier in global markets, including the EU.

However, if the domestic response is slow or fragmented, CBAM will:

• Shrink India’s share of the EU steel market,
• Widen the gap between large, green‑investing firms and smaller, less‑adaptive players, and
• Expose the Indian steel sector to further carbon‑linked trade measures from other advanced economies.

Ultimately, CBAM is not just a compliance challenge, it is a strategic catalyst. The direction India chooses now will define whether its steel industry competes on cost alone or evolves to compete on both cost and carbon in a rapidly changing global market.