Aluminium is unusual among CBAM-covered sectors because the emissions problem and the solution both sit in the same place: electricity. Approximately 80% of the Indian aluminium sector’s carbon footprint comes not from the smelting process itself but from the coal burned in captive power plants to generate the electricity that aluminium electrolysis requires. Solve the electricity problem and you have largely solved the CBAM problem. The regulatory framework to do that — Green Energy Open Access, the ISTS waiver, Renewable Purchase Obligations — already exists. The question is whether adoption can outpace CBAM’s escalation.

This article examines what CBAM means specifically for Indian aluminium — the Scope 1 versus Scope 2 distinction that shapes current exposure, the financial implications of the potential indirect emissions expansion, what the cost looks like across carbon price scenarios, what India’s major producers are actually doing, and what the realistic renewable procurement pathways are. For the broader CBAM framework, see Carbon Border Adjustment Mechanism and Its Impact on Indian Industry. For the operational compliance process, see How the Carbon Border Adjustment Mechanism Works.

Why Indian aluminium is structurally exposed to carbon pricing

Aluminium electrolysis — the Hall-Héroult process — consumes approximately 14 to 15 megawatt-hours of electricity per tonne of aluminium produced. This makes it one of the most electricity-intensive industrial processes on earth. In India, that electricity comes almost entirely from captive coal-based power plants built by the major producers to ensure reliable and affordable supply independent of unstable state grid conditions.

The financial logic of captive coal is well understood by the industry. CRU Group’s analysis makes it explicit: if Indian producers switched from captive coal CPPs to the state grid — even the relatively coal-heavy Odisha grid — power costs would increase by three to four times, making their smelter operations commercially unviable at current LME aluminium prices. The coal CPP model exists because it is the only way to run a financially viable smelter in India’s current energy environment. CBAM is the mechanism that begins to change that cost calculation — by adding a carbon cost to the coal CPP model that did not previously exist.

The Scope 1 versus Scope 2 distinction — the most important thing to understand

CBAM’s current scope creates a critical distinction for aluminium that does not apply in quite the same way to steel or fertilisers. Whether the levy covers only direct emissions or also indirect electricity emissions determines whether Indian aluminium faces a manageable compliance cost or an existential trade barrier.

The practical implication is that Indian aluminium producers are currently in a window of partial shelter from CBAM’s full potential impact. Their direct process emissions are comparable to international benchmarks — the electrolysis technology used in India is not fundamentally less efficient than that used elsewhere in the world. What makes Indian aluminium carbon-intensive is the electricity source, and CBAM does not yet price that.

The cost per tonne — what CBAM means financially today and tomorrow

Under the current Scope 1-only framework, Indian aluminium’s CBAM exposure depends primarily on how the direct emission intensity of each installation compares to the 1.55 tCO₂/t benchmark. For installations operating at benchmark level, the initial CBAM cost is minimal. For installations with higher direct emissions — due to older technology, lower anode quality, or operational inefficiencies — the gap to benchmark determines the levy.

The table above makes the strategic stakes clear. At current LME aluminium prices of approximately USD 2,300 to 2,800 per tonne, a Scope 1-only CBAM levy of €0 to 40 per tonne is commercially manageable — an annoyance, not a crisis. A Scope 1 plus Scope 2 CBAM levy of €1,000 to 2,000 per tonne is not manageable under any scenario. It exceeds the entire production cost of aluminium and would make Indian primary aluminium exports to the EU economically impossible. That is not a regulatory outcome the European Commission intends — but it is the mathematical consequence of extending CBAM to indirect emissions without first enabling Indian producers to access affordable renewable electricity at scale.

The aluminium industry has raised this asymmetry directly with European policymakers. BW Businessworld’s analysis notes that the sector is pressing for the indirect emissions expansion to be accompanied by recognition of renewable energy purchase agreements and green electricity certificates — so that producers who have genuinely switched to renewable power are not penalised despite their actual emission intensity being comparable to European producers.

For exporters, the current CBAM framework creates a financial incentive to develop verified actual emissions data rather than defaulting to EU default values. Using actual verified Scope 1 data showing compliance with the 1.55 tCO₂/t benchmark can reduce CBAM costs to near zero under the current framework. Without verified data, EU default values apply — and these are set at the highest emission intensity observed for the product type, potentially adding several hundred euros per tonne.

What India’s aluminium exports to Europe actually look like

India’s aluminium sector is dominated by four major producers: Vedanta Aluminium (the largest, with installed capacity of approximately 2.3 MMTPA), Hindalco Industries, the public sector National Aluminium Company (NALCO) and Bharat Aluminium Company (BALCO, a Vedanta subsidiary). Together, total installed primary aluminium capacity stood at approximately 4.1 MMTPA in 2022, with plans to expand to around 6.4 MMTPA by 2030.

India exports approximately 0.7 MMTPA of aluminium to Europe annually, representing a meaningful share of total production. The Assocham estimate that CBAM puts approximately 25% of India’s annual EU aluminium exports at risk reflects the combination of direct emission intensity risk and the compliance readiness gap at the company and facility level. India’s aluminium and steel exports to the EU fell 24.4% in FY2025 as CBAM reporting requirements began — a clear signal that EU buyers were already factoring carbon compliance into their supplier decisions before the financial obligations activated.

What distinguishes aluminium from steel in terms of EU export product composition is the relatively higher share of semi-fabricated and value-added products — rolled products, extrusions and foil — in India’s aluminium export mix. These downstream products are covered by CBAM under the aluminium product category CN codes, and in some cases carry higher direct emission intensity than primary aluminium ingot due to the additional processing energy required. Hindalco’s downstream expansion — including the new aluminium foil plant for lithium-ion battery applications — represents both a growth opportunity and an additional CBAM scope consideration.

What India’s major producers are actually doing

The renewable procurement pathways — what is actually available

The grid reliability barrier — the challenge that renewable tariffs alone do not solve

The CRU Group’s analysis of the Odisha grid is worth reading carefully because it explains why switching from coal CPPs to renewable energy is harder in practice than the falling cost of renewables suggests. Aluminium smelters run continuously — a grid outage or supply interruption causes immediate production losses and can damage pot lining, requiring expensive repairs. The Odisha state grid has historically suffered from reliability problems that make it unsuitable as a primary power source for smelters without significant supplementary storage or backup capacity.

This is why wind-solar hybrid systems combined with battery energy storage are the most promising near-term pathway — they provide a degree of supply reliability that individual solar or wind contracts cannot. The Energy Storage Obligation is building the battery storage supply chain that makes this commercially viable. And the ISTS waiver allows producers to procure renewable power from generators in renewable-rich states like Rajasthan and Gujarat without paying cross-state transmission charges that would otherwise erode the renewable cost advantage.

What this means for the sector’s strategic choices

India’s aluminium sector faces a more nuanced CBAM challenge than steel — the initial financial exposure is lower under current Scope 1-only coverage, but the potential exposure when indirect emissions are included is catastrophically higher. This creates a distinctive strategic window: a period of several years in which the CBAM cost is manageable enough to fund renewable transition investment, before the mechanism tightens to a point where coal-based production cannot economically reach EU markets.

The companies that use this window most effectively will be those that treat CBAM not as a trade penalty to be managed around but as the commercial signal it is: that the EU aluminium market is systematically repricing emission intensity into procurement decisions. EU buyers are already incorporating CBAM compliance capability into supplier qualification processes. Within two to three years, verified low-carbon aluminium credentials will be a threshold requirement for major EU contracts — not a differentiator. Companies that have not built that capability by then will be competing for a smaller and smaller slice of the market.

For the full regulatory context — how open access rules, renewable obligations and the Carbon Credit Trading Scheme interact for the aluminium sector — see the Aluminium sector page and the Industrial Decarbonisation Policy Map. For India’s broader climate commitments that frame the long-term direction, see the India Decarbonisation page.

Part of the Reclimatize.in CBAM cluster. Also read: CBAM and Its Impact on Indian Industry, How CBAM Works: A Guide for Exporters, and CBAM and Indian Steel.