The European Union is preparing a major expansion of its Carbon Border Adjustment Mechanism (CBAM), with plans to impose carbon taxes on around 180 additional steel- and aluminium-based products from January 2028, a move that could significantly widen the impact on India’s manufacturing exports.
A draft report by the European Parliament’s Committee on the Environment, Climate and Food Safety (ENVI) proposes extending CBAM deeper into the manufacturing value chain, covering a range of industrial goods including fabricated metal products, machinery parts, auto components, pipes, and structural materials.
The move signals a shift in CBAM from a tax focused on raw materials such as steel and aluminium to a broader regime covering semi-finished and finished goods.
Wider impact on Indian exports
According to the Global Trade Research Initiative (GTRI), the proposed expansion could bring a large share of India’s engineering exports to the EU under carbon tax exposure.
Sectors likely to be impacted include engineering goods, auto components, machinery, and aluminium-based products—key segments in India’s export basket to Europe.
GTRI estimates that by 2030, most industrial products entering the EU could face some form of carbon tax, significantly increasing compliance costs for exporters.
Tighter rules may erode cost advantage
The proposed changes also include stricter carbon accounting norms, particularly for scrap-based production, which is widely used in India.
Under the new framework, emissions from pre-consumer scrap would be included in the carbon footprint of final products. Exporters would also be required to provide verifiable proof of scrap origin and classification, reducing the current advantage enjoyed by recycled metal producers.
This could impact a substantial portion of India’s steel and aluminium sectors, where scrap-based production accounts for a significant share of output.
In addition, the EU has proposed disallowing the use of international carbon credits for CBAM compliance. This would force exporters to reduce emissions at source or align with domestic carbon pricing systems accepted by the EU.
Indirect emissions may add further costs
Another key proposal under consideration is the inclusion of indirect emissions, those arising from electricity consumption in CBAM calculations.
If implemented, this could significantly raise costs for Indian manufacturers, given the country’s continued reliance on coal-based power for industrial production.
The EU is also planning stricter anti-circumvention measures, including tighter reporting and verification requirements for importers suspected of under-reporting emissions or restructuring supply chains to avoid taxes.
FTA and rising compliance burden
The proposed CBAM expansion comes at a time when the India–EU Free Trade Agreement (FTA) is expected to be finalised.
While the FTA could lower tariffs on EU goods entering India, Indian exports to Europe may simultaneously face rising carbon-related costs, creating an uneven trade dynamic.
GTRI noted that Indian exporters will need to step up investments in emissions tracking, supply chain transparency, and decarbonisation to remain competitive in the EU market.
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