Key Numbers
• Estimated Decline in India's Steel Exports to EU: 24%
• Decline in Iron & Steel Exports to EU After CBAM Rollout (through April 2026): 13%
• Global Steel Industry Emissions Reduction from CBAM: Around 1%
• CBAM Fully Implemented: January 2026
• Sectors Covered: Iron & Steel, Aluminium, Cement, Fertilisers, Hydrogen and Electricity
Market Analysis
Carbon Compliance Is Emerging as the Next Trade Barrier
India's steel industry could face a significant challenge in one of its most important export markets as the European Union's Carbon Border Adjustment Mechanism (CBAM) begins to reshape global steel trade. 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 new carbon border tax regime. The study argues that while CBAM increases the carbon-related cost burden for Indian exporters, its overall impact on reducing global emissions is expected to be relatively modest.
The findings highlight a major structural shift in international trade. Historically, steel exporters competed primarily on price, quality and delivery schedules. Under CBAM, carbon intensity has become another critical factor influencing competitiveness. For countries like India, where blast furnace-based steel production remains dominant, the mechanism introduces a new commercial challenge beyond traditional trade barriers.
Understanding Why CBAM Matters
The European Union introduced CBAM to prevent "carbon leakage," a situation where industries relocate production to countries with less stringent environmental regulations while continuing to supply European markets. From January 2026, importers of carbon-intensive products entering the EU are required to pay a carbon cost equivalent to that borne by European manufacturers under the EU Emissions Trading System. Steel is among the sectors most directly affected because of its relatively high carbon emissions during production.
For Indian exporters, this means future competitiveness will increasingly depend not only on manufacturing efficiency but also on carbon efficiency. Producers with lower emission intensity are expected to enjoy a competitive advantage, while higher-emission facilities could face additional compliance costs that reduce pricing flexibility in European markets.
Early Trade Data Already Shows the Impact
The transition from reporting requirements to financial obligations under CBAM has already begun influencing trade flows. According to Department of Commerce data referenced in the ICRIER study, India's iron and steel exports to the European Union declined by 13 percent during the first four months following CBAM's implementation. While multiple market factors influence export volumes, the study suggests that compliance costs and increasing uncertainty have already started affecting export competitiveness.
The projected 24 percent reduction therefore reflects not merely theoretical modelling but also emerging trade patterns. European buyers are expected to become increasingly selective as carbon costs become a permanent component of procurement decisions, encouraging suppliers worldwide to accelerate investments in cleaner steel production technologies.
Indian Steelmakers Face Both Challenges and Opportunities
Although CBAM presents immediate challenges, it also creates a long-term opportunity for India's steel industry to accelerate decarbonisation. Several major producers have already announced investments in renewable energy, energy efficiency, scrap utilisation, carbon capture technologies and green hydrogen initiatives. These investments were initially driven by sustainability commitments but are now becoming increasingly important for maintaining export competitiveness.
India's National Green Hydrogen Mission and the government's broader focus on low-carbon manufacturing could support this transition over the coming decade. Producers capable of lowering their carbon footprint may not only protect access to European markets but also strengthen their position as global demand for low-emission steel continues to grow. The transition, however, will require substantial investments and technological upgrades across the steel value chain.
Trade Policy Alone Will Not Offset Carbon Costs
The ICRIER study also notes that the recently concluded India-EU Free Trade Agreement is unlikely to fully offset the commercial impact of CBAM. While the agreement provides greater technical cooperation on carbon accounting and recognition of verification systems, exporters will still need to comply with European carbon regulations. In other words, tariff reductions and market access improvements cannot eliminate the additional costs associated with embedded carbon emissions.
This reinforces an important message for the industry. Future export competitiveness will depend increasingly on production technology rather than trade policy alone. Carbon intensity, once considered primarily an environmental issue, is rapidly becoming a commercial determinant in international steel trade.
The Global Steel Industry Is Entering a New Competitive Era
CBAM reflects a broader transformation taking place across global manufacturing. Governments are increasingly integrating climate policy with international trade, creating new standards for market access. Similar carbon-related mechanisms are already being discussed by several other developed economies, suggesting that Europe may be setting a precedent rather than acting in isolation.
For India, this trend makes continued investment in cleaner steel production strategically important. As the world's second-largest steel producer with ambitious capacity expansion plans, maintaining export competitiveness will require balancing production growth with progressive reductions in carbon intensity. The industry therefore faces not only a regulatory challenge but also an opportunity to strengthen its long-term position in global markets.
Industry Impact
The ICRIER findings underline that carbon compliance is becoming a strategic business issue for India's steel industry. Export-oriented producers may need to accelerate investments in low-carbon technologies, emissions monitoring and process efficiency to remain competitive in premium international markets. At the same time, domestic policymakers may need to continue supporting decarbonisation through technology, financing and infrastructure development.
For downstream exporters, CBAM also signals that sustainability requirements are likely to become increasingly common across global supply chains. Companies that adapt early may be better positioned to retain market access as environmental standards continue evolving.
Outlook
The European Union's carbon border mechanism is expected to remain one of the most closely watched developments in global steel trade over the coming years. While the immediate impact will be felt through higher compliance costs, the longer-term effect could be a fundamental transformation in how steel is produced, traded and valued internationally.
For India, the challenge extends beyond preserving export volumes. The industry's future competitiveness will increasingly depend on its ability to combine scale, efficiency and lower carbon emissions. As global markets move towards greener manufacturing, carbon performance may become as important as cost competitiveness in determining long-term export success.
Disclaimer: This analysis is based on the latest ICRIER study, publicly available government information and independently verified industry sources. Market conditions and policy developments may evolve over time.