How EU's carbon tax will affect Indian steel exports
What's the story
The European Union (EU) will implement a carbon tax on select metals, with the payment phase starting tomorrow. The move is likely to impact India's steel exports negatively, according to the Global Trade Research Initiative (GTRI). The 27-nation bloc is introducing this levy on goods that produce carbon during their manufacturing process.
Emission levels
Carbon emissions in steel and aluminum production
In steel production, carbon emissions are highest for Blast Furnace - Basic Oxygen Furnace (BF-BOF) routes. The levels are lower for the gas-based Direct Reduced Iron (DRI) and lowest for scrap-based Electric Arc Furnace (EAF) routes. Similarly, in aluminum production, the source of electricity and its intensity play a major role in carbon emissions. Coal-generated power significantly increases the carbon burden and thus the carbon border adjustment mechanism (CBAM) cost.
Price adjustments
Indian exporters may have to lower prices
The GTRI has warned that many Indian exporters might have to lower their prices by 15-22%. This is so EU importers can use the margin to pay the CBAM tax. However, it's important to note that Indian exporters won't pay this tax directly. Instead, EU-based importers registered as authorized CBAM declarants will buy CBAM certificates linked to embedded emissions in imported goods.
Compliance challenges
Emissions measurement and compliance under CBAM
Ajay Srivastava, the GTRI Founder, emphasized that accurate emissions measurement is key to competitiveness in the EU. He said, "CBAM is not a corporate sustainability exercise; it is a plant-level emissions accounting regime." Under this regime, manufacturing exporters have to track fuel use, electricity consumption, production volumes and emission factors quarterly. Records must be auditable and aligned with EU methodologies or else exporters face default emission values set by the EU, intentionally conservative and often 30-80% higher than actual emissions.
Verification requirements
Independent verification of emissions data becomes mandatory
From 2026 onward, independent verification of emissions data will be mandatory. Only EU-recognized or ISO 14065-compliant verifiers will be accepted. The process will resemble a financial audit involving document review, emissions validation and formal certification. Srivastava also noted that low-emission producers using cleaner electricity might find CBAM as a competitive advantage in the EU market.