CBAM and India Trade Impact: Strategic Responses to Carbon Border Charges

Why India's export sectors face high CBAM exposure and how CCTS design can mitigate costs.

By Abhishek Das • December 8, 2025 • 9 min read

The Carbon Border Adjustment Mechanism mirrors the EU ETS carbon price. For a comprehensive technical breakdown of CBAM mechanics, see our detailed CBAM explainer. When a covered good enters the EU, the importer must calculate embedded greenhouse gas emissions — both direct (Scope 1) and indirect (Scope 2 electricity). The importer then purchases CBAM certificates equal to the tonne-CO₂-equivalent of the good, priced at the weekly EU ETS auction price.

• •Covered sectors: Steel, aluminium, cement, fertilisers, hydrogen, electricity.
• •Timeline: Transitional phase (Oct 2023 – Dec 2025) required reporting only. From January 1, 2026, financial liability applies. CBAM Factor = 97.5% in 2026, declining 2.5% annually through 2034 (0% factor = full liability).
• •Carbon price deductions: If the exporting country has a recognized carbon scheme and the producer paid a carbon price, that amount is deducted from CBAM liability. However, the EU's list of recognized schemes is short — currently limited to EU ETS and certain linked systems. India's CCTS is NOT yet recognized.

Key Insight: CBAM is live from January 1, 2026. The EU does not recognize India's CCTS as equivalent, so CCTS compliance does not automatically reduce CBAM liability.

India is among the world's largest exporters of CBAM-covered goods. Steel exports to the EU are particularly significant — over 5 million tonnes annually in recent years. Additionally, India exports large volumes of aluminium, cement, and fertilisers to EU markets.

Vulnerability profile: Indian steelmakers, especially those relying on coal-fired blast furnaces (BF-BOF process), have embedded emissions of 2-2.5 tonnes CO₂/tonne steel. At current EU ETS prices (EUR 80-90/tonne), this translates to EUR 160-225/tonne CBAM cost. For a typical exporter sending 100,000 tonnes annually to the EU, annual CBAM liability can exceed EUR 16-22 million.

MRV capability gap: The CBAM requires reliable measurement, reporting, and verification (MRV) of embedded emissions. Large multinational producers can manage this. But many Indian SMEs — particularly in secondary steel, foundries, and small-scale aluminium — lack sophisticated emissions accounting. This creates a competitive disadvantage: inability to prove lower emissions means higher CBAM liability, even if actual emissions are lower.

The risk is a market bifurcation: large, globally-compliant producers retain EU access and market share, while smaller producers struggle with compliance costs and lose export competitiveness.

Key Insight: Indian steelmakers face CBAM liability of EUR 160-225/tonne. MRV gaps make many SMEs unable to prove lower-emission compliance, leaving them at a competitive disadvantage.

India's CCTS is not yet recognized under CBAM. But India can change this trajectory through three critical design choices:

• •(a) Clear, credible carbon price signal: For the EU to recognize India's CCTS as equivalent, the scheme must establish a transparent, market-based carbon price. Manufacturers must see a predictable cost of carbon in their CCTS compliance obligations. This price cannot be "soft" — it must reflect real scarcity of allowances and genuine abatement costs. If CCTS carbon credits are abundant and cheap, the EU will view the scheme as greenwashing, not genuine climate action.
• •(b) MRV alignment and standardization: Embed CBAM-compatible MRV into CCTS design. Require covered entities to report product-level emissions (not just facility-level) using standardized digital templates. This allows one data set to satisfy both CCTS compliance and CBAM reporting. SMEs benefit from economies of scale — they don't have to build two parallel MRV systems.
• •(c) Strategic use of CCTS revenues: Dedicate CCTS auction revenues to efficiency upgrades, green hydrogen infrastructure, low-clinker cement development, and CCUS pilots. These investments reduce actual emissions, not just on paper. When manufacturers can prove lower embedded emissions via third-party verification, CBAM liability falls. The positive cycle: CCTS compliance → efficiency investment → lower CBAM costs → competitive advantage.

Without these design choices, CCTS will be seen as a domestic cost on exporters without reducing international carbon liabilities.

Key Insight: India's CCTS can reshape CBAM outcomes if designed with transparent carbon pricing, CBAM-aligned MRV, and investment in real decarbonisation.

Here is the critical insight many miss: CBAM only recognizes carbon prices paid in the exporting country if that scheme is deemed equivalent to the EU ETS.

Currently, the EU's list of recognized schemes is short — limited to EU ETS and a few linked systems. India's CCTS is not yet on this list. This creates a critical question: if an Indian steelmaker purchases compliance credits (CCCs) under CCTS to meet domestic GHG Emissions Intensity (GEI) benchmarks, will the EU recognize those costs as equivalent to EU ETS carbon prices? If the answer is "no," then Indian exporters face a double burden — they pay CCTS compliance costs domestically AND CBAM costs in Europe, without credit for either.

This equivalence gap is the core strategic risk. Producers that reduce actual embedded emissions — investing in EAF steel, low-clinker cement, or green hydrogen — win on both markets. CCTS compliance via CCC purchases alone will not reduce CBAM liability unless the EU explicitly recognizes CCTS as equivalent.

For CFOs, the implication is clear: achieving CCTS compliance is necessary for domestic regulatory compliance, but it is not sufficient to reduce CBAM liability. Real technological abatement — not just compliance credit purchases — is the only path to competitive export costs.

Key Insight: CBAM only recognizes carbon prices from equivalent schemes. If the EU doesn't recognize CCTS as equivalent, Indian exporters face a double burden: CCTS compliance costs at home plus full CBAM liability in Europe.

For Indian exporters, decarbonisation is not optional — it is competitive necessity. CBAM is live, aligning with India's commitments under the Paris Agreement and NDC targets. To understand how CCTS reinforces this strategy, review our CCTS fundamentals guide. The cost of inaction is measured in millions of euros annually in avoidable tariff expenses.

The strategic roadmap has four elements:

• •Measurement: Upgrade MRV capabilities to product-level. Know your embedded emissions at the SKU level, not just facility-wide averages. This is the foundation for both CCTS compliance and CBAM optimization.
• •Abatement: Prioritise technology investments that reduce actual embedded emissions. EAF steel, low-clinker cement, green hydrogen: these move the needle on both CCTS compliance and CBAM liability.
• •Scheme evolution: Advocate for India's CCTS to be recognized under CBAM equivalence. This requires transparent carbon pricing aligned with actual emissions intensity benchmarks, robust MRV, and verifiable emissions reductions.
• •Export strategy: Model dual-market scenarios: CCTS + CBAM combined cost. Identify product lines and geographies where early decarbonisation delivers the highest return.

Manufacturers that act now — building MRV systems, investing in low-carbon technologies, and positioning themselves for CBAM recognition — will dominate EU export markets through the 2030s. Those that wait will face compressed margins and market share loss.

Key Insight: CBAM creates both a compliance burden and a competitive opportunity. First movers in decarbonisation and MRV will capture export market share and premium pricing.

Ready to Compete in CBAM Markets?

Understand your CBAM exposure and build a competitive decarbonisation roadmap.

Ready to Compete in CBAM Markets?

Understand your CBAM exposure and build a competitive decarbonisation roadmap.

About the Author

Abhishek Das Co-founder, Climate Decode Co-founder of Climate Decode, with 8+ years of experience across carbon markets, pricing analytics, and policy interpretation spanning compliance and voluntary systems. His work sits at the intersection of regulated carbon markets and long-term decarbonisation strategy, translating complex market and policy signals into decision-grade insight. He has worked extensively across the global Voluntary Carbon Market and key compliance systems including the EU ETS, UK ETS, and WCI, covering carbon pricing and valuation, supply–demand analysis, offset project assessment, and financial modelling. At Climate Decode, Abhishek leads the analytics layer underpinning TerraNova and Canopy, developing India-specific carbon price scenarios, CCTS compliance pathways, and forward-looking decarbonisation roadmaps that integrate regulatory trajectory, market risk, and long-term capital planning. Speak to Abhishek → LinkedIn →

Continue Reading the CCTS Series