CBAM and Indian Steel Exports: What Changes in 2026
By Special Correspondent · SteelMath
The European Union’s Carbon Border Adjustment Mechanism entered its definitive phase on January 1, 2026. For Indian steel exporters, this is no longer a future concern — it’s an operational reality. Here’s what has changed, what the financial impact looks like, and how to prepare.
What Is CBAM?
CBAM is essentially a carbon tax on imports into the EU. It requires importers of certain goods — including iron and steel — to purchase carbon certificates corresponding to the embedded carbon emissions in those products. The price of these certificates is linked to the EU Emissions Trading System allowance price, which has been trading in the range of €65–80 per tonne of CO2 in early 2026.
The mechanism is designed to prevent “carbon leakage” — the risk that EU manufacturers lose competitiveness to imports from countries with weaker carbon pricing. Steel is one of the first sectors covered because it’s extremely carbon-intensive and heavily traded.
The Transition and Definitive Phases
The transition phase ran from October 2023 through December 2025. During this period, EU importers were required to report embedded emissions but did not need to purchase certificates. It was a reporting-only phase. Starting January 1, 2026, the definitive phase began. EU importers must now start purchasing CBAM certificates, though the financial obligation is being phased in gradually as free EU ETS allowances are phased out.
What This Means for Indian Steel
Indian steel production is significantly more carbon-intensive than European production, primarily because India relies heavily on the blast furnace route (BF-BOF) using coal-based energy. The average carbon intensity of Indian steel production is estimated at 2.0–2.5 tonnes of CO2 per tonne of crude steel, compared to approximately 1.4–1.8 tonnes for EU producers.
Industry studies estimate that the CBAM cost for Indian steel exports to the EU could range from $240 to $500 per tonne by the early 2030s when full financial obligations kick in, depending on the EU ETS price and India’s emission reduction progress. In the near term (2026–2028), the financial impact is smaller because of the gradual phase-in, but reporting compliance is already mandatory.
India exported approximately 4–5 million tonnes of steel to Europe in recent years. While this is a modest share of India’s total production (around 150 million tonnes per year), the EU is a premium market with higher realisations. Losing competitiveness in this market hurts disproportionately.
Hormuz + CBAM: The Double Pressure
The timing is difficult. Indian steel exporters are simultaneously facing higher production costs from the Hormuz-driven energy surge, higher freight costs for shipments to Europe (many routed via the Suez Canal, now facing elevated war risk premiums), and the start of CBAM financial obligations.
This triple squeeze makes European exports significantly less profitable in Q1 2026 than they were a year ago. Some exporters may redirect volumes to non-CBAM markets in Southeast Asia, the Middle East (post-crisis), and Africa.
How to Prepare
For immediate compliance, exporters need to ensure their EU importers have the data required for CBAM reporting: specific embedded emissions per tonne, production route (BF-BOF vs EAF), energy sources, and any carbon pricing already paid in India.
For medium-term positioning, Indian mills investing in green steel technologies — DRI with natural gas, green hydrogen pathways, renewable energy for EAF operations — will have a structural cost advantage under CBAM compared to those that don’t.
For strategic planning, monitor how India’s domestic carbon pricing evolves. If India implements a credible carbon pricing mechanism, Indian exporters can deduct those payments from CBAM obligations — potentially reducing the financial impact significantly.
SteelMath’s Energy → Production Cost Calculator now includes an option to model CBAM impact on export realisations. Try it with your production parameters.