CBAM for 2 January 2026

CBAM Latest News

• The European Union implemented its carbon tax on selected carbon-intensive metals from January 1, a move expected to impact India’s steel exports. 
• The tax applies to goods whose manufacturing processes generate significant carbon emissions, reflecting the EU’s push to curb carbon leakage and promote cleaner production.

EU’s Carbon Border Tax Comes into Force

• The European Union has begun implementing the world’s first carbon tax under the Carbon Border Adjustment Mechanism (CBAM) from January 1. 
• The move has drawn criticism from developing countries, including India, as it imposes a levy on carbon-intensive imports entering the EU.

What CBAM Covers

• CBAM applies a carbon-related charge on imports from:
  • Power sector
  • Energy-intensive industries such as cement, steel, aluminium, oil refining, paper, glass, chemicals, and fertilisers
• The mechanism targets goods originating from countries with lower environmental standards than the EU. 
• Importantly, EU lawmakers retain the power to expand the product list in future.

Impact on India and Developing Countries

• India’s exports to the EU are dominated by steel, iron, and aluminium, making them particularly vulnerable to CBAM-related costs.
• Beyond India, the measure is expected to raise trade barriers for many developing economies.
• A similar carbon border regulation is expected to be implemented by the United Kingdom this year, compounding pressures that already exist due to high US tariffs on metals imposed by the United States.

Global Pushback and Legal Challenges

• Russia formally launched a dispute against CBAM in May last year, joined by other developing nations.
• The United Nations Conference on Trade and Development (UNCTAD) has warned that CBAM could:
  • Hurt export-led development
  • Reduce market access for poorer countries
  • Worsen global trade inequalities, especially if countries with carbon taxes and greener production are exempted

Developed vs Developing World Argument

• EU’s position: CBAM merely extends domestic environmental standards to imports, preventing “carbon leakage” and ensuring fair competition.
• Developing countries’ concern: CBAM violates the principle of Common But Differentiated Responsibilities (CBDR), a core concept in international environmental law recognised by the World Trade Organization.
  • Under CBDR, all countries share responsibility for addressing environmental challenges, but obligations must differ based on: Level of development; Historical contribution to environmental damage; Capacity to respond.

CBAM and the Shift in Steelmaking Technology

• To comply with the EU’s CBAM, Indian steel exporters are seeking government support to transition from blast furnace–basic oxygen furnace (BF–BOF) routes to electric arc furnaces (EAFs), which use steel scrap and are significantly cleaner.

Emissions Profile of Steel Production Routes

• Highest emissions: BF–BOF route
• Moderate emissions: Gas-based direct reduced iron (DRI)
• Lowest emissions: Scrap-based EAF route
• Indian steel production is largely dependent on the blast furnace route, making exports more vulnerable under CBAM.

Industry Demands and Trade Negotiations

• Exporters have urged the government to:
  • Support compliance with CBAM requirements
  • Seek a carve-out for MSMEs in ongoing India–EU trade deal negotiations, expected to conclude early this year
• The EU has clarified that CBAM is not negotiable, as it is framed as a climate, not trade, measure.

Scrap Availability and Competitive Disadvantage

• Indian exporters have flagged that the EU is regulating steel scrap exports to strengthen domestic capacity. 
• The US and EU, the world’s largest scrap producers, extensively use arc furnaces, potentially benefiting their steel industries under CBAM while disadvantaging Indian manufacturers.

CBAM Impact: Price Cuts Likely for Indian Exporters

• From January 1, 2026, every shipment of Indian steel and aluminium entering the EU will attract a carbon cost under CBAM. 
• The Global Trade Research Initiative (GTRI) estimates exporters may need to cut prices by 15–22% to absorb the tax burden.
• GTRI warns that MSMEs will be hit hardest due to:
  • High compliance, data, and verification costs
  • Risk of being priced out of the EU market altogether

Data Gaps Inflate Carbon Costs

• A key challenge is the lack of plant-level emissions data:
  • Large producers often do not share verified emissions data with MSME buyers
  • In absence of verified data, EU authorities may apply default (highest) emission values, sharply increasing CBAM costs even if actual emissions are lower
• Experts suggest reducing compliance costs through Mutual Recognition Agreements (MRAs):
  • An Indian certifying body’s emissions data could be recognised by the EU.
• Experts caution that if competitors like China comply faster, Indian exporters could lose competitiveness.

CBAM: Trade Protection or Climate Action

• Indian trade experts argue that climate–trade measures like the EU’s CBAM are driven more by import curbs and commercial interests of developed countries than genuine environmental protection.
• A United Nations Conference on Trade and Development (UNCTAD) study (2021) estimated that CBAM would reduce global CO₂ emissions by only 0.1%, while significantly restricting exports from developing countries.
• Amid concerns that CBAM breaches WTO principles, UNCTAD suggested the EU should use CBAM revenues to support cleaner technologies in developing countries.

India’s Official Position

• Finance Minister Nirmala Sitharaman termed CBAM unilateral, arbitrary, and a trade barrier, stating that measures like CBAM and the EU deforestation law undermine energy transition efforts. 
• India has formally conveyed its concerns to the European Union.

Source: IE | ET