India's crucial steel and aluminium exports to the European Union (EU) are set to encounter a significant new financial hurdle starting January 1, 2026. This follows the full implementation of the EU's Carbon Border Adjustment Mechanism (CBAM), which will transition from a mere reporting phase to a stage where payments are mandatory, according to a recent analysis by the Global Trade Research Initiative (GTRI).
The Financial Impact and Competitive Pressure
While the direct CBAM levy will be the responsibility of importers within the EU, the economic burden is expected to be transferred back to Indian exporters. This shift will occur through mechanisms like lower realised prices, stricter contract terms, and more rigorous supplier selection criteria imposed by European buyers. The GTRI analysis estimates that to maintain their market position, many Indian exporters may be forced to reduce their prices by a substantial 15% to 22%. This discount would effectively allow EU buyers to offset the carbon cost through their own margins.
The commercial reality of CBAM will hit from the very first shipment of 2026, influencing pricing negotiations immediately. Although the formal surrender of CBAM certificates will commence only in 2027, EU buyers are anticipated to start factoring the embedded carbon costs into all procurement decisions from the January 2026 deadline. This will directly affect price talks, contract clauses, and how suppliers are ranked.
Plant-Level Data: The New Compliance Battleground
A critical aspect of the CBAM regime is its focus on plant-level emissions accounting. Exporters will be required to calculate the embedded emissions for each specific manufacturing installation, covering both direct fuel combustion and indirect electricity consumption. Crucially, corporate-wide averages, general ESG disclosures, or sustainability reports will not be accepted under the CBAM framework.
The absence of verified, plant-specific emissions data poses a severe risk. In such cases, EU authorities may assign default emission values, which the GTRI report warns can be 30% to 80% higher than actual emissions. This would drastically inflate the payable carbon cost. From 2026, independent verification of this emissions data will become mandatory, and only verifiers recognised by the EU or compliant with the ISO 14065 standard will be accepted.
MSMEs at a Disproportionate Disadvantage
The report highlights that Micro, Small, and Medium Enterprises (MSMEs) are likely to bear a disproportionate share of the compliance burden. They face higher relative costs for verification and meeting the complex data requirements. A major concern is that large primary producers often do not share detailed plant-level emissions data with the MSMEs that source steel or aluminium from them for further processing or export.
"This asymmetry risks penalising MSMEs disproportionately and accelerating their exit from EU supply chains unless corrective mechanisms are introduced," said Ajay Srivastava of GTRI. Without verified data, these smaller exporters face the penalty of default values, raising their costs unfairly even if their actual emissions are lower.
The sectors most affected will be those using high-emission production methods. In steel, manufacturers relying on the blast furnace-basic oxygen furnace route are likely to see the sharpest loss of competitiveness. For aluminium, the carbon burden will heavily depend on the electricity intensity of production and the source of the power used.
The GTRI report concludes that CBAM marks a fundamental shift in global trade dynamics. In regulated markets like the EU, carbon intensity is becoming as important as cost efficiency in determining competitiveness. While low-emission producers could gain a new advantage, exporters who fail to align with CBAM's stringent data and verification requirements risk losing access to the valuable EU market altogether due to compliance gaps.
