When European buyers stop ordering steel, the consequences for an Indian manufacturer can begin well before a carbon bill arrives. For Chandan Steel Limited, a stainless steel manufacturer based in Gujarat, some smaller European customers have already disappeared as the European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) adds a new layer of costs, emissions data and paperwork to cross-border trade.
“Some smaller European buyers that previously purchased one or two containers, typically 20 to 25 tonnes, have disappeared. Even the number of inquiries has gone down because of the additional cost burden and additional paperwork the European Union’s Carbon Border Adjustment Mechanism (CBAM) demands,” Chaitanya Chandan, director of Chandan Steel, tells Down To Earth (DTE). “Those small buyers are switching to finished steel goods instead of purchasing raw materials from India as it leaves a hole in their pockets.”
The company exports around 40,000 tonnes of steel annually out of total production of about 60,000 tonnes. Its products include precision bars, profiles, flanges and forgings, seamless tubes and pipes, wires and wire rods. Chandan says it is still too early to quantify CBAM’s impact on the company as the EU’s rules and compliance requirements continue to evolve.
CBAM entered its definitive phase on January 1, 2026, moving beyond the reporting-only transition period that began in October 2023. The mechanism covers imports of selected iron and steel, aluminium, cement, fertilisers, electricity and hydrogen products. EU importers must account for embedded emissions in covered goods. The purchase of certificates for emissions associated with 2026 imports is scheduled to begin in February 2027, with the first annual declarations and corresponding certificates due by September 30, 2027, according to the European Commission.
For Indian exporters, the immediate challenge is not limited to the carbon price. They must also establish the emissions associated with production, obtain data from suppliers, arrange verification and provide the information European customers need to comply. Although the legal obligation to purchase and surrender CBAM certificates rests with the authorised EU importer, exporters may bear part of the cost through lower prices, renegotiated contracts or lost orders.
Paperwork behind a carbon bill
For small and medium manufacturers, demonstrating compliance can be a challenge in itself. Aditya Garodia, managing director of Corona Steel Industry, tells DTE that the company is facing difficulties obtaining the data and certifications required to establish the emissions embedded in its products. “We have been consulting experts for months to get everything in place so we can get necessary compliances and certifications done as early as possible if not immediately, and stay ahead of our competitors.” Based in Kolkata, Corona exports to developed markets, including the US, Canada, Western Europe, the UK and Australia.
Manufacturers often buy steel and other materials from outside suppliers, including secondary mills. Garodia says, “Collecting the required certifications for these inputs and assembling the documentation for a CBAM assessment can be difficult. Consultants are available, but many are still learning the requirements and are not readily accessible across the country.”
He estimates that compliance and certification could cost a company Rs 5-10 million, depending on the manufacturing capacity. He also says the price difference between steel sourced from large producers and secondary producers could be around 15-20 per cent, making it difficult for smaller and medium manufacturers to switch all their inputs to more expensive material from large producers.
“CBAM has not yet significantly affected the industry,” Garodia says, adding, “The impact will become more visible as the payment system takes effect. Smaller firms have limited resources to assess the emissions of every product and component used in manufacturing.”
The requirements can extend beyond emissions generated inside a factory. A manufacturer may need information on the carbon intensity of steel, components and other inputs, as well as the electricity used in production. If a supplier cannot provide verified information, the exporter may have to use applicable default values or find another way to meet the reporting requirements.
October is typically when Binayak Hi-Tech Engineering, a West Bengal-based manufacturer of fabricated iron and steel products for construction and agricultural applications, begins receiving orders from European customers for the following year. But this year, some buyers are holding back. “Normally, we start getting orders for the next year in October,” managing director Atul Jhunjhunwala tells DTE. During a conversation on October 3, he said three to four customers had asked to wait until the end of the month before placing orders, as they sought greater clarity on CBAM.
Describing CBAM as a “grey area”, Jhunjhunwala pointed to uncertainty over its implementation and reporting requirements. Some customers were delaying orders or considering pausing shipments until the rules became clearer, he says, adding that it is too early to estimate the effect on orders. The uncertainty also extends to emissions reporting across supply chains. More than 90 per cent of Binayak’s production is exported, including to Europe and North America. Calculating product-level emissions is challenging when manufacturers depend on suppliers for information about the raw materials and components they use. “Only part of a product’s emissions can be controlled directly by the manufacturer. Much of the information needed for a product-level emissions calculation depends on raw materials and components sourced from other suppliers,” Jhunjhunwala says.
Binayak uses both solar power and conventional electricity supplied by Calcutta Electric Supply Corporation (CESC). Jhunjhunwala says, “Obtaining the emissions data needed from electricity suppliers has been difficult, despite writing several times over the past 8-9 months to CESC. Even when we, manufacturers, are willing to calculate our own emissions, we cannot complete the exercise without information from other parts of the supply chain, and we don’t know how clear their sources are.”
The company has been consulting specialists to understand the documentation and verification required under CBAM. Manufacturers, particularly micro, small and medium enterprises (MSMEs), often lack the technical staff and resources needed to interpret the requirements independently, Jhunjhunwala highlights. The process also raises concerns about disclosing commercially sensitive information on suppliers, costs and production.
For companies exporting to Europe, compliance could also help distinguish their products from those of competitors. Jhunjhunwala says Europe is a growing market for Binayak and that the company is working towards CBAM compliance, with the intention of expanding its European business if it can meet the requirements ahead of competitors.
Garodia says the effect of CBAM on exports remains uncertain. “Bottlenecks and hurdles will persist for the first 2-3 years, the industry might figure things out by 2028 as the industry does not yet know the extent of the disruption,” he said, when asked whether the compliance hurdles could affect India's trade with Europe.
Steel exports face most immediate exposure
India’s exposure to CBAM is particularly significant in iron and steel. Eurostat data show that the EU imported €3.9 billion worth of iron and steel from India in 2024, making India its largest source of such imports that year. Between 2019 and 2024, imports increased by 89.2 per cent.
Indian government data show that finished steel exports to the EU reached 4.03 million tonnes in financial year 2023-24 (FY24), compared with 1.95 million tonnes in FY20, according to the Union Ministry of Steel.
The Global Trade Research Initiative (GTRI) estimates that India’s steel and aluminium exports to the EU had already fallen 24.4 per cent in FY25, before CBAM certificate payments began. The research services institute attributes part of the decline to reporting and compliance requirements. In a December 2025 report, it estimated that Indian steel and aluminium exporters could face pressure to reduce prices by 15 to 22 per cent to remain competitive once the payment phase began.
An industry specialist from one of India’s leading integrated steelmaking companies tells DTE that exports to Europe account for only around 4-5 per cent of the company’s production. The company will continue supplying the market only if its margins remained comparable with those available domestically, the specialist says, adding that it will not absorb the CBAM cost.
The impact is likely to vary by production route, emissions intensity, product mix and the share of exports going to the EU. A June 2026 study by the Centre for Responsible Business finds that coal-based technologies account for more than 80 per cent of Indian steel output. It estimates the sector’s carbon intensity at around 2.55 tonnes of carbon dioxide per tonne of steel, compared with a global average of around 1.85 tonnes.
India’s steel industry includes large integrated producers as well as secondary manufacturers that rely on different combinations of raw materials, electricity and production processes. This diversity makes company-level emissions data important in calculating the potential cost of CBAM.
A June 2026 working paper by the Indian Council for Research on International Economic Relations (ICRIER) estimates that India’s iron and steel exports to the EU could decline by 23.94 per cent at a carbon price of $86.01 per tonne of carbon dioxide. The corresponding estimated decline for China was 22.45 per cent.
India exported around $25 billion worth of iron and steel globally in 2022. The study estimates that its global iron and steel exports could fall by 5.7 per cent, compared with a 1.2 per cent decline for China. Indian exports of non-ferrous metals such as aluminium could fall by about 10 per cent. Exports of iron and steel to CBAM-exempt markets, including Switzerland, Norway and other European Free Trade Association markets, could rise by 3.16 per cent, according to the study.
An August 2026 study by European climate think tank Sandbag models €762 million in CBAM fees for India’s steel exports in 2034 under a business-as-usual scenario. It cautions that using national average emissions intensity could obscure differences between steelmaking routes and individual producers. Under a more granular scenario, the estimated fees fall to €407 million.
Some Indian steelmakers are investing in alternative production routes and cleaner electricity. Tata Steel commissioned a 0.75-million-tonne-a-year electric arc furnace in Ludhiana in March 2026, using ferrous scrap and renewable power. JSW Steel is pursuing renewable energy, green hydrogen, battery storage, biomass and carbon capture technologies as part of its decarbonisation strategy.
Chandan Steel, meanwhile, produces stainless steel largely from recycled scrap, melting it into semi-finished billets before making different shapes and products. Chaitanya Chandan says the company’s current emissions are around one tonne of carbon dioxide per tonne of stainless steel produced. It is seeking to reduce this to around 0.4 to 0.5 tonnes, or as low as technically possible, to produce cleaner steel and meet European buyers’ requirements.
Cost of staying in European market
The EU says CBAM is intended to prevent carbon leakage by ensuring that imported carbon-intensive goods face a carbon price comparable to that applied to EU production. Carbon leakage occurs when production moves to countries with less stringent climate rules or when domestic production is displaced by imports with higher emissions.
The mechanism is being implemented alongside the gradual withdrawal of free emissions allowances for EU industries under the EU Emissions Trading System (EU ETS). Its scope and associated safeguards are also under discussion. In June 2026, the European Commission welcomed a Council agreement to extend CBAM to selected downstream goods and strengthen anti-circumvention measures. In September, the European Parliament voted to remove a proposed emergency-brake provision that would have allowed temporary suspension of the carbon charge under exceptional circumstances. The final rules remain subject to negotiations between EU institutions and member states.
German climate and energy experts have emphasised the need to distinguish between immediate compliance costs and the longer-term economic consequences of decarbonisation. Petter Lydén of Germanwatch tells DTE that the costs of adjustment may be felt in the short term, but that delaying decarbonisation could leave industries facing higher costs over time. Eva Pander Maat of E3G says, “CBAM is an instrument intended to reduce carbon leakage and encourage decarbonisation, while its implementation and implications for trading partners remain part of the wider debate over climate and trade policy.”
“The overall impact on India’s economy must be distinguished from the concentrated effects on exposed sectors and firms,” says Rajat Verma, a researcher at the Centre for Social and Economic Progress (CSEP), pointing to his research on CBAM that examines how the effect depends on both the volume of exports and their emissions intensity. “Even where a country’s overall exposure appears limited as a share of gross domestic product, the consequences can be substantial for a sector whose exports are concentrated in the EU market.”
A study by CSEP researchers using a computable general equilibrium model examines three scenarios: domestic carbon pricing in India without CBAM, CBAM without domestic carbon pricing, and a combination of the two. The analysis considers how carbon and verification costs affect export prices, EU demand, production, suppliers, investment and household incomes. Its findings underline the distinction between economy-wide effects and the distribution of costs across sectors and households.
For Indian manufacturers, the ability to demonstrate lower emissions may influence both the cost of compliance and their position in the European market. However, companies such as Corona Steel and Binayak Hi-tech Engineering face challenges in obtaining data from suppliers, securing technical support and managing verification costs.
Who gets carbon revenue?
The use of CBAM revenue is another point of contention for India. The European Commission’s earlier CBAM questions and answers state that the mechanism is not designed primarily to generate budgetary revenue, but that revenue generated is set to become an own resource of the EU budget under the relevant interinstitutional agreement.
The Commission has proposed allocating 75 per cent of CBAM certificate-sale revenue to the EU budget as an own resource for the 2028-2034 period, with the remaining 25 per cent linked to a proposed Temporary Decarbonisation Fund for energy-intensive industries. The fund proposal is intended to support decarbonisation investment in EU industries exposed to international competition. It does not provide for returning revenue to exporting countries.
India has argued that the burden of climate-related trade measures should be considered in light of the principle of common but differentiated responsibilities. At the World Trade Organization, India has raised concerns about CBAM alongside other countries, including China, Indonesia and South Africa. The 2026 BRICS Summit in New Delhi also saw members oppose “unilateral, punitive, discriminatory and protectionist” measures such as CBAM.
India has sought to use its trade engagement with the EU to secure concessions on the mechanism. India is seeking to leverage the India-EU Free Trade Agreement (FTA) discussions to secure some form of relief, including the possibility of using revenue collected on Indian exports to support the country’s climate and energy transition. Discussions are ongoing, a top Moefcc official told DTE in August.
The FTA negotiations concluded on January 27, 2026, but the agreement had not been signed as of October 12, and its implementation remains subject to the completion of domestic processes. The agreement does not exempt Indian exports from CBAM. Its provisions include consultations and technical cooperation on carbon pricing, emissions verification and implementation, as well as a forward-looking most-favoured-nation assurance.
The result is that tariff preferences under the FTA, once it enters into force, will operate alongside CBAM obligations. Indian steelmakers exporting covered products will still need to account for embedded emissions and provide the required information to European importers.
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