With just 100 days left for the European Union to impose a carbon tax on several products, including metals, the government and the Indian exporters both have not yet taken significant steps to address this barrier, think tank GTRI said on Sunday.
Indian exporters of steel and aluminum are staring at a fresh cost shock as the European Union (EU) begins collecting its Carbon Border Adjustment Mechanism (CBAM) levy from January 1, 2026.
The CBAM Regulation notified in May 2023, will initially cover iron and steel, aluminum, cement, electricity, hydrogen, and fertilisers. Over the next few years, the EU plans to extend CBAM to cover all major industrial products.
It is designed to equalise carbon costs between EU-made and imported goods.
From January 2026, the EU will charge a carbon tariff on selected imports, using the EU Emissions Trading System (ETS) price and adjusting for any carbon price already paid in the exporting country.
"Despite having a two-year transition period since October 2023, India has not significantly advanced its CBAM preparedness. Exporters, especially MSMEs, lack clarity on emissions reporting and verification processes," the Global Trade Research Initiative (GTRI) said.
No major policy initiative has been launched to support capacity-building or subsidise compliance costs, it said.
"With EU CBAM levies kicking in from January 2026, the risk of further export contraction looms large," GTRI Founder Ajay Srivastava said.
He suggested that India should study the CBAM flexibilities reportedly offered to the United States under their trade framework and demand comparable treatment as part of ongoing India-EU trade pact talks.
India's steel and aluminum exports to the EU fell 24.4 per cent from USD 7.71 billion in FY24 to USD 5.82 billion in FY25.
Steel was hit hardest, with iron and steel exports plunging 35.1 per cent to USD 3.05 billion, while articles of iron and steel fell 6.8 per cent and aluminum exports declined 9.8 per cent, it said, adding, "this sharp fall, even before CBAM tax collection begins, highlights the heavy compliance burden on Indian industry".
Srivastava suggested that India must urgently launch a comprehensive CBAM preparedness plan.
This should include fast-tracking the Carbon Credit Trading Scheme (CCTS), with clear sectoral benchmarks, robust MRV (monitoring, reporting, verification) systems, and enough accredited verifiers to avoid compliance bottlenecks, he said.
"India should also negotiate with Brussels for transition flexibilities -- similar to what the US reportedly secured -- such as longer phase-in periods, partial waivers, or recognition of domestic carbon payments," he added.
He also said the EU's new strategic agenda released on September 17 says carbon prices paid under India's upcoming CCTS can be deducted from CBAM liabilities.
"This is presented as a concession to India but it is not a concession as a provision of CBAM Regulation already allows such deductions for all countries. India's Carbon Credit Trading Scheme (CCTS) is not yet ready.
This means Indian exporters will bear the full CBAM burden starting January 1 2026," he said.
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