India’s Metal Exports to EU Plunge 24% as CBAM Reporting Hits MSMEs

Indian exporters of steel and aluminum are staring at a fresh cost shock as the European Union begins collecting its Carbon Border Adjustment Mechanism levy from 1 January 2026.

The CBAM Regulation (EU) 2023/956, notified in May 2023, will initially cover iron and steel, aluminum, cement, electricity, hydrogen, and fertilisers. Over the next few years, the EU plans to extend CBAM to cover all major industrial products.

CBAM is designed to equalise carbon costs between EU-made and imported goods. From January 2026, the EU will charge a carbon tariff on selected imports, using the EU Emissions Trading System price and adjusting for any carbon price already paid in the exporting country.

Since 1 October 2023, importers have had to submit quarterly reports on the embedded greenhouse gas emissions in CBAM-covered imports and any carbon price paid in the country of origin. The first report for the fourth quarter of 2023 was due by 31 January 2024, and this compliance-heavy process has proved too complex for many Indian exporters, especially MSMEs. As a result, several firms have stopped exporting to the EU, leading to a 24.4% drop in India’s steel and aluminum exports, from $7.71 billion in 2023-24 to $5.82 billion in 2024-25.

Steel was hit hardest, with iron and steel exports plunging 35.1% to $3.05 billion, while articles of iron and steel fell 6.8% and aluminum exports declined 9.8%. This sharp fall, even before CBAM tax collection begins, highlights the heavy compliance burden on Indian industry.

Indian exporters already face safeguard measures and anti-dumping duties in the EU. Safeguard tariff-rate quotas cap duty-free imports for 26 steel product categories, and imports above quota attract a 25% tariff. For stainless steel cold-rolled flat products from India, provisional anti-dumping duties range between 13.6% and 34.6%. CBAM levies will be over and above these duties, further eroding the competitiveness of Indian producers.

EU Strategic Agenda
On 17 September 2025, the European Commission released the New Strategic EU-India Agenda, which refers to cooperation on CBAM. It also states that carbon prices paid under India’s forthcoming Carbon Credit Trading Scheme will be deducted from CBAM liabilities.

However, this is not a special concession for India. Article 9 of the CBAM Regulation already allows importers from any country to reduce CBAM certificates if they can demonstrate that a verifiable carbon price has been paid domestically.

The reality is that Indian exporters will not be able to benefit from such deductions any time soon. The CCTS, India’s first national carbon market, was legally notified under the amended Energy Conservation Act, 2022, but remains at a preparatory stage. The Bureau of Energy Efficiency is the administrator, supported by the Ministry of Power, MoEFCC, and the National Steering Committee for the Indian Carbon Market.

CCTS will cover nine energy-intensive sectors, including steel, cement, aluminium, fertilizers, petrochemicals, textiles, and paper, with 2023-24 as the baseline year. The first compliance cycle begins in 2025-26 with modest emissions-intensity reduction targets of just 2–3% per year.

Trading of Carbon Credit Certificates is expected only by late 2026. Progress has been slow, with bottlenecks in monitoring, reporting, and verification capacity, shortage of accredited verifiers, unclear enforcement penalties, and uncertainty about market liquidity. Industry fears that early targets are too lenient to create a robust price signal.

Even when fully operational, the Indian carbon price is expected to remain below $10 per tonne, far below the EU Emissions Trading System price of around €65/$ 71 per tonne. This means Indian exporters would still need to pay the difference, roughly $ 61/tCO₂, as CBAM liability leading to a significant additional cost burden.

“Even outside the CCTS, Indian industry already bears an implicit carbon cost. Power tariffs include the expense of mandatory renewable energy purchases by discoms, and energy efficiency rules apply to sectors like Iron, steel and aluminum. However, there is no clear estimate of the per-ton CO₂ cost of these measures, and it is uncertain whether the EU’s CBAM will recognize such implicit pricing,”  says Anuradha RV - Partner, Clarus Law Associates.

India must factor these expenses to cut CBAM burden.

EU exemptions will offer little relief. The original CBAM regulation exempted individual consignments worth under €150, which was irrelevant for commercial shipments. In September 2025, the EU added a de-minimis exemption for companies importing less than 50 tonnes of CBAM goods annually.

However, this limit is for EU importers and most commercial shipments far greater volumes, making this exemption practically meaningless.

Lack of Preparedness
Despite having a two-year transition period since October 2023, India has not significantly advanced its CBAM preparedness. Exporters, especially MSMEs, lack clarity on emissions reporting and verification processes. No major policy initiative has been launched to support capacity-building or subsidise compliance costs. With EU CBAM levies kicking in from January 2026, the risk of further export contraction looms large.

India should study the CBAM flexibilities reportedly offered to the United States under their trade framework and demand comparable treatment as part of ongoing India-EU FTA talks. Until then, CBAM remains the “elephant in the room” threatening India’s EU export competitiveness and complicating the prospects of concluding a balanced free trade agreement.

Actions Needed

• GOI  must urgently launch a comprehensive CBAM preparedness plan. This should include fast-tracking the Carbon Credit Trading Scheme (CCTS), with clear sectoral benchmarks, robust MRV (monitoring, reporting, verification) systems, and enough accredited verifiers to avoid compliance bottlenecks. 
• The government should subsidize the cost of emissions reporting for MSMEs, provide template tools for carbon accounting, and create a centralized helpdesk to guide exporters through quarterly CBAM reporting.
• India should also negotiate with Brussels for transition flexibilities—similar to what the U.S. reportedly secured—such as longer phase-in periods, partial waivers, or recognition of domestic carbon payments.

Without such measures, CBAM could deepen India’s trade deficit with the EU and undermine the ongoing India-EU FTA negotiations.