The EU’s Carbon Border Adjustment Mechanism (CBAM) has entered its definitive phase, forcing Indian steelmakers to face higher compliance costs and stricter emissions reporting. With carbon-heavy production methods common in India, exporters face margin pressure and a potential decline in EU market share unless they accelerate the move to greener energy.
The European Union’s Carbon Border Adjustment Mechanism (CBAM) has moved firmly into its definitive phase, turning from a reporting requirement into a direct financial impact for Indian steel exporters. Since the full implementation began in January 2026, Indian steel companies are now required to account for the carbon footprint of their products to enter the European market, creating a new layer of costs that directly impacts profit margins.
The Impact on Profitability
For Indian steelmakers, the transition is challenging due to the production methods that dominate the domestic sector. Most Indian steel is produced using the blast furnace route, which relies heavily on coal. This creates a higher carbon intensity—averaging between 2.0 and 2.5 tonnes of CO2 per tonne of steel—compared to the European average of 1.4 to 1.8 tonnes.
Because the EU now requires importers to buy carbon certificates based on these emissions, Indian firms face a choice: either provide verified, accurate data or accept the EU’s ‘default’ emission values, which are set at punitive, high levels. This effectively forces companies to spend significantly on third-party verification and administrative systems to prove their efficiency. For many small and medium enterprises (MSMEs), these costs are substantial, potentially making their exports uncompetitive compared to peers who have invested in lower-emission technology.
Competitive Challenges and Industry Shifts
Major steel producers like JSW Steel and Tata Steel are already adjusting their strategies by investing in electric arc furnaces and renewable energy. These large players have the financial capacity to absorb some of the compliance costs and are better positioned to integrate green technology into their production cycles.
However, the broader industry is feeling the pressure. Reports show that Indian steel exports to the EU saw a 35.1% decline in the fiscal year 2024-25 as European buyers began shifting their procurement strategies to avoid the administrative and financial weight of carbon-intensive imports. If Indian manufacturers cannot lower their carbon intensity, they risk losing further market share in Europe, which has historically been a significant destination for high-quality Indian steel products.
What Investors Should Monitor
While the government is actively engaging with the EU and developing a domestic Carbon Credit Trading Scheme (CCTS) to help internalize these costs, the immediate challenge remains operational. Investors may want to track how different companies manage their carbon data reporting and whether they are successfully transitioning toward cleaner production methods.
Key monitorables include the trend in export volumes to the EU, the pace of capital spending on green energy, and the ability of companies to maintain profit margins despite rising compliance overheads. The effectiveness of domestic policies in shielding Indian exporters from double-taxation—where carbon costs are paid in both India and the EU—will also be a critical factor for the sector's long-term export viability.