Key Numbers
- Estimated Decline in India's Steel Exports to EU: 24%
- Decline in Iron & Steel Exports to EU After CBAM Rollout: 13%
- CBAM Financial Phase: Started in 2026
- India's Position: World's Second-Largest Steel Producer
- India's National Steel Capacity Target: 300 Million Tonnes by 2030
- Key Challenge: Carbon intensity becoming a major determinant of export competitiveness
Market Analysis
CBAM Is Changing the Rules of Global Steel Trade
For decades, the global steel industry has competed primarily on cost, quality and delivery. However, the European Union's Carbon Border Adjustment Mechanism (CBAM) is introducing an entirely new parameter into international trade—carbon emissions. According to a recent study by the Indian Council for Research on International Economic Relations (ICRIER), India's steel exports to the European Union could decline by 24 percent under the CBAM regime, highlighting the growing commercial importance of low-carbon manufacturing.
Unlike conventional import duties, CBAM does not directly restrict trade. Instead, it places a carbon price on imported products equivalent to what European manufacturers pay under the EU Emissions Trading System. The objective is to ensure that imported products compete on similar environmental standards while discouraging the relocation of carbon-intensive manufacturing outside Europe.
Why Indian Steel Faces a Greater Challenge
India has emerged as the world's second-largest steel producer and one of the fastest-growing steel markets globally. Yet a significant portion of its steel production continues to rely on coal-based blast furnaces and coal-based direct reduced iron (DRI) routes, resulting in higher carbon emissions than many competing producers. While Indian steel remains highly competitive in terms of production costs, carbon intensity is becoming an increasingly important consideration for international buyers.
The ICRIER study suggests that this structural disadvantage may gradually affect India's position in the European market. Although European demand for Indian steel is expected to continue, exporters could face higher compliance costs that reduce their pricing advantage, particularly in commodity-grade products where margins are already relatively thin.
The Impact Extends Beyond Steel Producers
The implications of CBAM extend well beyond integrated steel companies. India's engineering, automotive, fabricated steel, machinery and capital goods sectors all depend on competitively priced domestic steel for exports. If primary steel producers face higher compliance costs while exporting to Europe, downstream manufacturers could also experience indirect effects on production costs and international competitiveness.
Moreover, Europe represents one of the world's largest markets for high-value manufactured products. As environmental regulations become increasingly integrated into procurement decisions, exporters throughout the manufacturing value chain may need to strengthen carbon reporting, emissions monitoring and sustainability compliance to maintain market access.
Decarbonisation Is Becoming a Business Strategy
The introduction of CBAM is accelerating investment in cleaner steelmaking technologies across the world. Indian steel companies have already announced significant investments in renewable energy, energy-efficient production, waste heat recovery, scrap utilisation and green hydrogen. These initiatives were initially driven by environmental commitments but are now becoming increasingly important for preserving export competitiveness.
Government initiatives such as the National Green Hydrogen Mission and the proposed Green Steel Scheme are expected to further support this transition. As cleaner technologies become commercially viable, producers capable of lowering their carbon footprint may gain a competitive advantage not only in Europe but also in other international markets that adopt similar carbon-related trade policies.
Diversification Will Become Increasingly Important
While the European Union remains an important export destination, Indian steel producers have gradually diversified exports across Southeast Asia, the Middle East, Africa and North America. This strategy reduces dependence on any single market while providing greater flexibility as international trade regulations evolve. However, Europe continues to offer premium opportunities for value-added steel products, making it strategically important despite increasing compliance requirements.
Industry experts increasingly believe that Indian exporters should focus on expanding higher-grade and specialised steel products rather than relying primarily on commodity exports. Higher-value products generally provide greater pricing flexibility, allowing manufacturers to better absorb additional compliance costs associated with carbon regulations.
Carbon Performance Will Define Future Competitiveness
The ICRIER study highlights an important shift taking place across global manufacturing. Carbon performance is no longer viewed solely as an environmental metric—it is becoming a commercial differentiator. Buyers, investors and governments are increasingly evaluating products based not only on price and quality but also on their embedded carbon emissions.
For India's steel industry, this transformation presents both a challenge and an opportunity. Companies that successfully combine production scale, operational efficiency and lower carbon intensity may strengthen their global competitiveness as international markets continue moving towards more sustainable manufacturing standards.
Industry Impact
CBAM represents one of the most significant structural changes facing India's steel export industry in recent years. While the estimated 24 percent decline in exports reflects the potential commercial impact of higher carbon compliance costs, it also reinforces the urgency of accelerating investments in cleaner steelmaking technologies. Exporters capable of reducing emissions and improving sustainability credentials are likely to be better positioned in premium international markets.
Outlook
Europe's Carbon Border Adjustment Mechanism is expected to reshape international steel trade over the coming decade. For Indian steelmakers, long-term competitiveness will increasingly depend on balancing production growth with continuous improvements in carbon efficiency. As more countries consider introducing similar mechanisms, sustainability is likely to become an integral component of global trade rather than a regional regulatory requirement.
India possesses the scale, technical capability and domestic demand needed to remain a leading global steel producer. The next phase of growth, however, will depend not only on expanding capacity but also on producing steel that meets the environmental expectations of future international markets.
Disclaimer: This analysis is based on the latest ICRIER study, publicly available government information and independently verified industry sources. Policy developments and market conditions may evolve over time.