Since 1 January 2026 every tonne of Indian steel, aluminium, cement or fertiliser that enters the European Union owes carbon certificates under the EU’s Carbon Border Adjustment Mechanism (CBAM). Nobody has paid yet: certificates for 2026 imports go on sale on 1 February 2027 and must be surrendered by 30 September 2027. But the bill is already being priced into contracts, and the choice in front of Indian exporters is narrower than the title suggests. “Not complying” does not mean not paying. It means letting the EU assume your emissions, at a default value that for Indian hot-rolled steel is well above what most Indian mills actually emit.

This piece sets out how much of India’s trade is exposed, what CBAM will cost per tonne under the rules now in force, and why India’s own carbon credits will not reduce that cost any time soon. It updates this blog’s August piece on emissions reduction and CBAM compliance with the 2026 certificate prices, the EU’s default values and EUROFER’s figures for the first half of 2026.

What reaches EU shores

A policy brief from RIS, the commerce ministry’s think-tank, puts India’s exports of CBAM-covered goods to the EU at USD 6.32 billion in 2024, from UN Comtrade data. That made India the fourth-largest CBAM supplier, after China (USD 16.3 billion), Türkiye (USD 11.0 billion) and the UK (USD 8.2 billion). Iron and steel was 85% of it; CBAM goods were 8.2% of everything India sold the EU that year. GTRI’s figures for India’s fiscal year show the exposure already shrinking: steel and aluminium exports to the EU fell 24.4% in 2024-25, to USD 5.82 billion, with iron and steel down 35.1% to USD 3.05 billion. GTRI attributes part of the fall to CBAM’s reporting obligations, which began in October 2023.

By volume, Crisil puts India at 2.4 million tonnes (Mt) of the 29.7 Mt of steel the EU imported in 2025, about 8%, and estimates that about 40% of India’s rolled-steel exports went to the EU. Sandbag, a European think-tank, counts about 4 Mt of Indian steel within CBAM’s scope in 2025 once long products, pig iron, ferro-alloys and ingots are included. The two figures measure different things; neither is wrong. Italy (1.07 Mt), Belgium (0.72 Mt) and Spain (0.48 Mt) took 34% of India’s finished-steel exports in 2025-26, according to the steel ministry’s Joint Plant Committee as reported by Argus.

EUROFER, the European steel producers’ association, reports in its European Steel in Figures 2026 and quarterly outlooks that EU crude steel output fell 2.9% in 2025 to 125.8 Mt, a record low, while consumption rose 4.4% to 134.4 Mt. Imports met 30% of consumption for the year and a record 37% in the fourth quarter, as buyers stocked up before CBAM and the EU’s new steel import rules. In the first half of 2026 total EU steel imports fell 5%. India supplied 7.7% of finished-steel imports, with volume up 1% on EUROFER’s count, behind Türkiye, China, South Korea and Indonesia. India-side data compiled by BigMint show a sharper fall: 1.01 Mt shipped to the EU in January–June 2026, down 19.8%, while India’s total steel exports rose 27% to 4.63 Mt, with Vietnam, the UK and the UAE taking the extra tonnes. The two series differ in product scope and in when a shipment is counted.

Aluminium is a much smaller exposure. India sold the EU about €1 billion of aluminium in 2024, about 3% of EU imports, and USD 1.03 billion in 2025, of which USD 0.70 billion was unwrought metal. Unwrought aluminium shipments to the EU in January 2026 were 41.7% below January 2025, according to AL Circle, but one month says little. Cement, fertiliser, hydrogen and electricity exports to the EU are negligible.

Every product the rule covers, and what India sells of each

CBAM’s product list, Annex I of Regulation (EU) 2023/956, is written in the EU’s Combined Nomenclature (CN) codes, whose first six digits match the HS codes India uses. It covers six sectors: cement and clinker (CN 2523, plus “other kaolinic clays”, 2507 00 80), electricity (2716), nitrogen fertilisers and their inputs (ammonia 2814, nitric acid 2808, potassium nitrate 2834 21, and headings 3102 and 3105 except phosphorus–potassium mixes), hydrogen (2804 10), aluminium (unwrought metal and most products of chapter 76) and iron and steel. Steel is the broadest: all of chapter 72 except scrap and most ferro-alloys, agglomerated iron ore, and the chapter 73 headings for track material, tubes and pipes, fittings, structures, tanks and containers, fasteners and “other articles”. A product’s embedded emissions include those of its precursors: a bolt carries the emissions of the steel it was made from, which is why small fastener makers relying on default values have been charged as if they were steel mills.

Mapping India’s 8-digit export data from the commerce ministry’s TradeStat database onto that list gives India’s worldwide exports of every CBAM product. Excluding electricity, which goes almost entirely to Nepal and Bangladesh, India exported about US$24.4 billion of CBAM goods to all countries in 2025-26, +4% on the year: about US$17.4 billion of iron and steel and US$6.8 billion of aluminium. Cement and fertilisers together were under US$150 million.

Four things stand out. First, the EU matters most for steel. TradeStat’s country table for chapter 72 puts India’s exports to the 27 EU countries at US$3,410 million in 2025-26, 33% of the chapter’s US$10,317 million and +12% on the year, with Italy alone at US$1,222 million. Second, the ferro-alloy line splits India’s trade down the middle: ferro-manganese and ferro-chrome (US$1,481 million to all countries) are inside CBAM, but silico-manganese, India’s largest ferro-alloy export at US$1,257 million, is outside it and faces the EU’s separate ferro-alloy safeguard instead. Third, a large part of India’s steel trade is in the processed products of chapter 73, such as pipes for oil and gas, fittings, structures and fasteners, where Indian exporters are often small firms that buy their steel and cannot easily get emissions data from the mill. Fourth, about US$2.3 billion of chapter 73 exports, led by stainless-steel household articles, is outside CBAM today, but the Commission’s December 2025 proposal would add about 180 downstream steel and aluminium products from 1 January 2028, and the European Parliament’s September 2026 position would add more than 450. Which Indian lines fall inside depends on a final list that is still being negotiated.

TradeStat gives values but no tonnages at this level, and it records exports by destination country only one commodity at a time, so the EU share is known here only for chapter 72. Indian 8-digit codes do not always match the EU’s 8-digit splits; the mapping above works at 4 and 6 digits, which is exact for every heading except kaolinic clays, left out here.

How the charge is worked out

The EU importer, not the Indian mill, is legally liable. For each tonne of product it must surrender certificates for the product’s embedded emissions, less the free allocation that an EU producer of the same product still receives. For steel and aluminium only direct emissions count; electricity is excluded. In formula form:

certificates per tonne = embedded emissions − (CBAM factor × EU benchmark) − any carbon price effectively paid in India

The CBAM factor is the share of free allocation EU plants keep. Under the law in force it is 97.5% in 2026, 95% in 2027, 90% in 2028, 77.5% in 2029, 51.5% in 2030, and falls to zero in 2034. The Commission’s July 2026 proposal to revise the EU Emissions Trading System (COM(2026) 616) would slow this, to 59% in 2030 and a floor of 15% until 2037. It has not been adopted. The final benchmark for blast-furnace hot-rolled steel is 1.370 tonnes of CO2 per tonne; the latest draft figure for unwrought aluminium is 1.423.

The certificate price in 2026 is the quarterly average of EU carbon auction prices: €75.36 for the first quarter, €75.28 for the second, €82.32 for the third (published 5 October), and about €84.76 so far in the fourth. A Reuters poll of analysts in July 2026 expected €89 in 2027 and €95 in 2028.

The emissions figure is where the choice lies. An importer can use installation-level data from the Indian mill, checked by a verifier accredited in the EU. India’s own accreditation body, NABCB, does not qualify; as of July 2026 seven EU accreditation bodies had agreed to accredit verifiers outside the EU, and the first were expected around September. Without verified data the importer must use the EU’s default value for India, plus a mark-up of 10% in 2026, 20% in 2027 and 30% from 2028. India’s defaults are among the highest of any country: 4.28 tonnes of CO2 per tonne of hot-rolled flat steel and 1.87 for unwrought aluminium, according to Indian consultancy GreenSutra’s reading of the implementing regulation. Indian blast-furnace mills emit about 2.5–2.7 tonnes per tonne of crude steel, according to BigMint; the national average is 2.54 (NITI Aayog, via CSE).

To comply or not to comply: the cost per tonne

Applying the formula to Indian hot-rolled coil, at €80 a tonne of CO2 in 2026 and €100 in 2030 and 2034, gives the figures below. They are this blog’s arithmetic and illustrative: the carbon price, mill emissions and benchmarks will all move.

A blast-furnace mill whose verified emissions are 2.5 tonnes of CO2 per tonne of hot-rolled coil would cost its EU buyer about €93 a tonne in 2026. On default values the same coil costs about €270, which matches Argus’s calculation (€269.78) to the cent and, at the third-quarter price, the €278 estimated by Shanghai Metals Market. JSW Steel and Cargill gave a similar range at a Eurometal webinar: €65–70 a tonne with verified data and €250–300 on defaults. So in 2026, not verifying costs about €177 a tonne more; from 2030 the gap is about €306. On an offer price of about USD 600 a tonne CFR Antwerp, which BigMint reported in February 2026 (about €517), the verified charge is 18% of the price in 2026 and the default charge 52%; by 2034 they would be 48% and 108% at that price.

Set against those numbers, the cost of complying is small. Vendors quote €5,000–50,000 per installation for CBAM verification; industry experts put the upfront cost for a small Indian unit at ₹15–20 lakh for emissions accounting, auditors and reporting. At €177 a tonne, a mill recovers €50,000 on its first 300 tonnes. For a large integrated steelmaker the case is overwhelming: at 1 Mt a year to the EU, verification is worth about €177 million in 2026 alone.

The decision is harder for three groups.

• Aluminium smelters. Because CBAM excludes power emissions for aluminium, India’s default of 1.87 tonnes is low, even though Indian smelters running on captive coal power emit 18–22 tonnes per tonne in total. If a smelter’s verified direct emissions (anodes and the gases released in the smelting cells) are above 2.06 tonnes in 2026, or 2.43 from 2028, the default is cheaper than the truth. For aluminium, “not complying” can be the rational choice. The cost is small either way in 2026, about €30–90 a tonne, and rises to roughly €170–250 by 2034.
• Small firms and traders. Fastener and forging makers in Punjab and elsewhere have had consignments held at EU ports for incomplete carbon declarations, and levies under default values were reported at €240–300 a tonne. A trader or service centre that cannot get installation data from the mill that made the steel has no option but the default. Goyal said on 23 October that the government would bear the “entire cost of certification” for micro and small enterprises; no scheme has been notified.
• Mills whose real emissions are high. Coal-based direct-reduced-iron plants can emit more than blast furnaces. Verification still beats the marked-up default for most, but it makes the cost visible to the buyer. Sandbag estimates that India’s steel CBAM bill in 2034 would be €762 million on current average emissions and €407 million if Indian groups sent their lowest-emission output, such as AM/NS India’s gas-based Hazira plant, to the EU and the rest elsewhere.

The third choice is not to sell to the EU at all, and the 2026 data suggest some of that is already happening. Indian prices did not fall when CBAM began: BigMint’s export price for hot-rolled coil to the EU dipped in mid-January and then rose, because quotas and CBAM tightened supply. GTRI’s expectation that exporters will have to accept 15–22% price cuts is a forecast, and no reports of Indian mills offering CBAM discounts were found. What has changed is that EU buyers now assess a carbon-adjusted landed cost and add clauses passing the CBAM bill back to the mill.

A quota on top of the carbon charge

CBAM is not the only new cost. The EU’s steel safeguard expired on 30 June 2026 and was replaced on 1 July by Regulation (EU) 2026/1384, which cuts tariff-free quotas by about 47%, to about 18.3 Mt a year, and raises the duty above quota from 25% to 50%. From 1 October 2026 importers must prove where the steel was first melted and poured. India’s allocation is reported four ways: 1.64 Mt a year in the India–EU trade agreement text, 1.9 Mt as the commerce ministry’s country-specific figure, 1.94 Mt in Crisil’s reading, and up to 2.8 Mt if shared quotas left unused by others are included. Against 2.4 Mt shipped in 2025, Crisil expects India’s total steel exports to fall 25–30% in 2026-27. Steel inside the quota still owes CBAM; steel outside it pays the 50% duty and CBAM. Cold-rolled flat steel from India also carries definitive EU anti-dumping duties from August 2026.

The trade agreement, concluded on 27 January 2026 and still to be signed, gives no CBAM exemption. Its CBAM text sets up a technical dialogue on verification and default values and promises India any CBAM flexibility the EU later grants another country. Goyal said on 23 October that it should be signed “by the end of this year”.

Why Europe built the wall: dear gas, record-low output, dearer steel

CBAM is a climate measure, but it arrived when Europe’s steel industry was at its weakest in decades, and the timing shapes how it works. The war in Ukraine sent Dutch TTF gas, Europe’s benchmark, to a daily peak of about €350 per megawatt-hour in August 2022; EUROFER said spot gas was then ten times the US price. Prices have fallen since, to an average of about €34 in 2024 and €43 in the first half of 2026, but rose again in the summer after the US–Iran conflict and the closure of the Strait of Hormuz. At €43 a megawatt-hour, European gas costs about US$14.5 per million British thermal units, roughly 4 times the US Henry Hub price the US Energy Information Administration expects for 2026 (US$3.50) and about 2 times India’s administered price for gas from older fields (US$7, its ceiling since April 2026). EUROFER’s 2026 annual report, European Steel in Action, says its members pay “electricity and natural gas prices two to three times higher than those of their competitors in the U.S., India, China and Middle East and North Africa”, with wholesale power still above €85 per megawatt-hour against about €45 before the crisis.

Output followed. EU crude steel production fell 10.5% in 2022 to 136.7 Mt and to 126.3 Mt in 2023; in 2025 it reached 125.8 Mt, “the lowest level ever recorded”, almost 20 Mt below pre-pandemic levels and nearly 60 Mt below 2008. Yet EU steel consumption rose 4.4% in 2025 to 134 Mt. Imports of finished and semi-finished steel rose 14% to almost 40 Mt and took a record 30% of the market, with a 53% surge in the fourth quarter. EUROFER says the industry lost more than 30 Mt of capacity and about 30,000 direct jobs in five years. Mills ran at about 65% of capacity in 2025 and 67% in May 2026, so a third of Europe’s steelmaking assets sat idle while their fixed costs did not; that, rather than output per worker, for which no figures were found, is where the productivity loss shows. ArcelorMittal stopped about 7 Mt a year of European capacity from September 2022 and shut a blast furnace at Bremen, citing power prices; US Steel Košice idled two of its three blast furnaces in 2022; Thyssenkrupp announced 11,000 job cuts and a capacity reduction from 11.5 Mt to under 9 Mt in November 2024.

The same energy prices are stalling Europe’s own cleaner steel. EUROFER counts 13 direct-reduction and 20 electric-furnace projects that could add 26.9 Mt of direct-reduced iron and 44.1 Mt of low-carbon steel by 2035, but says “the majority of projects are facing delays due to high energy costs of natural gas and electricity in Europe”, with renewable hydrogen at €7–12 a kilogram. ArcelorMittal dropped its hydrogen plans for Bremen and Eisenhüttenstadt in June 2025, giving up about €1.3 billion of German aid and calling even gas-based direct reduction “not competitive”; Thyssenkrupp paused its hydrogen tender in 2025 and is renegotiating the subsidy for its Duisburg plant; Sweden’s Stegra needed a €1.4 billion rescue round in April 2026.

The squeeze is now being passed down the chain. With imports held back by CBAM and the quota, northern European hot-rolled coil rose from about €578 a tonne in late August 2025 to €731 on 9 October 2026, about 26% higher, though the rise also reflects the steel cycle. Carmakers, among the largest steel users after construction, are absorbing it in a bad year: EU vehicle production fell 4.3% in 2025, its third annual decline; Volkswagen’s operating profit more than halved in 2025 to €8.9 billion, a 2.8% margin; and the five largest European car groups’ operating profit fell 10.7% in the first half of 2026, to a 4.1% margin. The sources blame US tariffs, the Chinese market and weak European demand first; dearer steel is one more cost on a thin margin, not the main cause, and no study found puts a number on its share.

Against that background, CBAM works as part of a layered shield, and the layers protect EU mills more than the carbon price alone suggests.

The asymmetry comes from the benchmark. Free allocation, and the matching deduction for importers, are both set at the CBAM benchmark, which is based on the most efficient EU plants. An EU blast-furnace mill near the benchmark keeps almost all its allowances in 2026; EUROFER’s own figure for the industry’s 2026 carbon bill, €3.4 billion, is about €27 per tonne of EU crude steel on average. An Indian mill emitting 2.5 tonnes of CO2 per tonne of hot-rolled coil pays on everything above 97.5% of the benchmark, about €93 a tonne, and about €270 on defaults. Sandbag argues that free allocation is generous enough until 2030 to give EU mills windfall profits in 2026–2028, because CBAM lets them raise prices towards the cost importers face while paying little themselves; Thyssenkrupp replies that the gains do not pay for its green-steel investment. As free allocation falls to zero in 2034, the gap closes and both sides pay the full carbon price.

What CBAM does not do is close the energy gap that hurt EU output in the first place. It prices carbon, not gas: a gas-based plant in the EU and one in India owe CBAM on the same emissions, but the EU plant pays several times as much for the gas. That gap is why EUROFER calls energy prices the factor that “will decide Europe’s industrial future”, why it wants an EU target of €50 per megawatt-hour for total energy costs by 2030, and why its climate chapter warns that “if CBAM stops at steel, carbon leakage won’t”: it wants CBAM extended to downstream goods, tighter anti-circumvention rules and support for EU exports, 70% of which go to countries with no carbon price. For Indian exporters, the lesson is that the EU’s protection is driven by its own industrial crisis as much as by climate policy, and is more likely to tighten than to loosen.

Can Indian carbon credits cut the bill?

In principle, yes: the formula subtracts any carbon price “effectively paid” in India. In practice, not in 2026 and probably not by much later. India’s Carbon Credit Trading Scheme (CCTS) sets emissions-intensity targets for plants. A plant that beats its target earns carbon credit certificates (CCCs) it can sell, and one that misses buys them. This blog covered the scheme’s design and the CERC’s trading rules in August and September. Its status for CBAM purposes is below.

Three things stand between an Indian credit and a lower CBAM bill. First, the price. No CCC has traded and CERC has not set a floor, but analysts expect ₹600–1,200 a tonne, about €6–13; GTRI expects under USD 10, ORF USD 11–15, RMI €9–13. Under India’s earlier efficiency-trading scheme (PAT), certificates in the second cycle traded at the floor price set by the government, a report for Invest India and NIPFP found. Against a CBAM price of €75–85, even the top of the range is about a sixth.

India is not unusual in pricing carbon cheaply. The World Bank’s State and Trends of Carbon Pricing 2026 counts 87 carbon taxes and trading systems covering about 29% of global emissions on 1 April 2026, and lists India’s CCTS among five new national instruments of the past year. It puts the average direct carbon price worldwide at about US$21 a tonne. That average is about a quarter of the EU price that CBAM charges, so even a recognised Indian price at world-average levels would leave most of the CBAM bill in place.

Second, the design. The Commission’s draft rules for deducting a foreign carbon price, published on 13 May 2026 and not yet adopted, net out free allocation, rebates and exemptions from the price paid. Under CCTS a plant that meets its target pays nothing, so its effective price is zero, and a plant that misses it pays only on the shortfall, not on all its emissions. As an illustration: a mill at 2.5 tonnes that misses a 5% intensity cut buys credits on about 0.13 tonnes of CO2 per tonne of steel. At €13 a credit that is about €1.71 a tonne, against a 2026 CBAM charge of about €93 on verified data. A LiveLaw analysis argues for this reason that CCTS may not clear the EU’s bar at all, and the CII–IIM Ahmedabad report of August 2026 says domestic carbon prices “are not automatically deducted”.

Third, recognition. The EU recognises no country’s scheme under the draft. India–EU carbon-market talks in New Delhi on 12 October agreed only to continue the technical dialogue. Credits from the voluntary market, such as Verra or Gold Standard credits, have no route into the deduction: the draft’s only credit route is Paris Agreement Article 6 credits used inside a foreign carbon-pricing scheme, capped at 10% of emissions, and the European Parliament voted on 15 September to remove even that. (This reading is from summaries of the draft; the Commission’s own text could not be opened.)

The steel ministry’s green steel taxonomy does not help either. Its threshold, 2.2 tonnes of CO2 per tonne of finished steel for the lowest star rating, is well above the EU benchmark of 1.370 that CBAM uses.

The views of Indian and international think-tanks, and the government’s, line up on this point even where they differ on remedies.

No 2026 statement on CBAM and carbon credits was found from TERI, FICCI, FIEO, EEPC India, the Indian Steel Association or the Aluminium Association of India.

What doesn’t follow from any of this

None of this means CBAM will cost India’s exports their EU market. EU producers face the same carbon price as their free allocation falls, so EU steel prices are expected to rise too; Sandbag estimates that if 80% of the carbon cost passes into EU prices, India’s net loss in 2034 falls to about €79 million. Nor does it mean Indian credits are worthless: a credible domestic price would cut emissions and, with an agreed deduction method, could eventually keep some revenue in India. The cost table uses round carbon prices, a single benchmark and crude-steel intensities that may include power emissions, so real costs for a given plant could be higher or lower. India’s default values come from a consultancy’s reading of the EU regulation, and the trade volumes are estimates that disagree on scope. Most sources were read as search summaries; see the notes below.

What would fix this

• The Ministry of Steel and the commerce ministry should fund EU-accredited verification for every Indian installation that ships CBAM goods to the EU, starting with steel, where it saves about €177 a tonne in 2026. The scheme Goyal announced on 23 October should be notified with rules and an outlay, and should cover traders that buy from mills, not only manufacturers.
• The Bureau of Energy Efficiency should publish plant-level direct emissions intensities, from the measurement and reporting it already collects under CCTS, in the format the EU uses, so that EU importers can see what an Indian plant emits rather than falling back on defaults.
• In the trade agreement’s technical dialogue, India should seek EU recognition of NABCB-accredited verifiers and a review of India’s steel default values against verified plant data, both of which the dialogue’s terms allow.
• MoEFCC should notify the steel targets and CERC should publish the floor and ceiling prices before the first trading window, so that a CCTS price exists to be assessed. The government should be clear that this is about domestic emissions, not a CBAM offset, because at current estimates it cannot be one.
• If India wants CBAM revenue to stay at home, it needs a charge that is actually paid per tonne of emissions, such as the export levy ORF and CEEW’s stakeholders have proposed, agreed with the EU in advance as deductible. At 2.4 Mt and the verified 2026 rate in the table above, steel alone would mean about €224 million a year now going to the EU.

These are proposals from this blog, not recommendations any agency has adopted, except where a think-tank or the government is cited.

Sources and caveats

About this article: Researched, written and edited by Umashankar Triplicane Dwarakanathan, with AI research assistance; every figure is meant to trace to the primary source cited. See the Editorial Policy for how sourcing, AI use and corrections work.