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India Macro · CompetitivenessIndia's Industrial Decarbonisation Competitive Position: The Gaps, Penalties, and Carbon Price Asymmetries Defining the Decade
India's blast furnace (BF-BOF) steel sector averages 2.36 tCO2 per tonne of crude steel, resting above China's best-practice range of 1.8 to 2.0 tCO2 per tonne and the European Union sector average of roughly 1.6 tCO2 per tonne. The primary aluminium sector averages about 16.98 tCO2 per tonne, which sits higher than the global average of 15.1 tCO2 per tonne. Meanwhile, India's CBAM default steel emission factor stands at a steep 4.32 tCO2 per tonne before applying the 10 percent mark-up starting in 2026. This imposes a penalty of over €200 per tonne in CBAM certificate costs on European importers relying on default values for Indian-origin products. However, India's domestic Carbon Credit Trading Scheme (CCTS) price is projected at approximately Rs 600 to Rs 900 per tCO2e (roughly USD 7 to USD 11), a sharp contrast to the EU ETS price of approximately €65 per tCO2e. This asymmetry defines the central competitive challenge of the decade ahead: India's carbon intensity currently sits above international benchmarks, its domestic carbon price acts as a fraction of international levels, and CBAM serves as the bridge permanently connecting the two. This article examines where India actually stands on industrial carbon intensity against global peers, interprets the commercial impact of CBAM and CCTS cost signals, and explores what India's 2035 NDC and public capital programmes must accomplish to close the gap before it becomes a structural disadvantage.
Key Takeaways
India's BF-BOF steel sector averages an emission intensity of 2.36 tCO2 per tonne of crude steel, forming the CCTS sector baseline for FY2023-24 confirmed in the official gazette. For context, best-practice Chinese BF-BOF plants operate at around 1.8 to 2.0 tCO2 per tonne, reflecting a 15 to 25 percent efficiency gap. The EU sector averages roughly 1.6 tCO2 per tonne. While India's Electric Arc Furnace (EAF) sector represents a smaller share of total production at about 23 percent, its output (ranging from 0.3 to 0.8 tCO2 per tonne based on renewable energy usage) acts as the most internationally competitive production route. The 2.36 tCO2 per tonne average is largely dragged up by an aging BF-BOF fleet built heavily between 1970 and 2000, plagued by older coke ratios and less waste heat recovery than modern counterparts.
India's CBAM default steel factor operates at a punitive 4.32 tCO2 per tonne prior to any mark-up, blending highly efficient and entirely inefficient plants into one restrictive average. When the mandatory 10 percent mark-up takes effect in 2026 (climbing to 30 percent in 2028), the effective CBAM default for Indian steel surges to 4.752 tCO2 per tonne. After deducting the BF-BOF benchmark of roughly 1.543 tCO2 per tonne (adjusted for 97.5 percent free allocation to 1.504 tCO2 per tonne), the net CBAM exposure under default values equals roughly €211 per tonne in 2026. Conversely, an Indian BF-BOF plant submitting actual verified data of 2.36 tCO2 per tonne only faces about €56 per tonne. This near-€155 per tonne discrepancy offers a critical commercial argument for adopting verified emission reporting immediately.
India's CCTS carbon price, anticipated to land between Rs 600 and Rs 900 per tCO2e (roughly USD 7 to USD 11), sits 6 to 10 times lower than the EU ETS equivalent of €65 per tCO2e. This gap is intentional. The Phase 1 CCTS model operates as an intensity-based system allowing for continuous economic expansion, targeting relative efficiency upgrades over strict emission ceilings. While prices will increase as targets tighten in Phase 2, even an eventual Rs 1,500 per tCO2e target would leave India's domestic carbon price far below Europe. The looming policy debate centers on whether this gap protects industrial competitiveness effectively, or limits the heavy technology investments required to close the broader carbon intensity gap by 2035.
The CCTS-CBAM offset deduction mechanism, secured in the EU-India Strategic Agenda of September 2025, permits covered Indian exporters to deduct their verified CCTS carbon price payments directly from their CBAM certificate obligations. Every rupee paid under CCTS reduces CBAM liabilities proportionately. At a CCTS price of Rs 800 per tCO2e and a conversion rate near 90 INR to the Euro, this equals an €8.9 per tCO2e deduction. While this does not entirely close the massive cost gap, it offers genuine, material recognition of India's domestic carbon pricing framework, delivering growing value as CCTS prices mature.
India's 2035 NDC, approved by the Union Cabinet on March 25, 2026, commits the nation to a 47 percent reduction in GDP emissions intensity alongside a 60 percent non-fossil electricity capacity target by 2035. For heavy industry, fulfilling these commitments requires a 2.5 to 3.5 percent annual reduction in emission intensity across steel, aluminium, cement, and fertilizers. This pace notably outstrips the CCTS Phase 1 target of 1 to 3 percent. India's strong historical track record, reducing GDP emissions intensity by about 36 percent between 2005 and 2020, lends deep credibility to the 2035 NDC. However, the most grueling abatement challenges now lie squarely within the industrial sector rather than power generation.
The carbon intensity gap: India versus peers across sectors
India's industrial carbon intensity profile is not universally disadvantaged. Instead, the landscape is nuanced. Some sectors already align with global best practices, while others carry significant structural deficits tied to aging technology, legacy energy sources, and delayed capital investments. Accurately mapping these gaps provides the foundation for understanding the precise compliance costs Indian exporters face, distinguishing domestic CCTS pressures from border-imposed CBAM taxes.
| Sector / Route | India Average GEI | China Best Practice | EU Average | Global Best in Class | India's Position |
|---|---|---|---|---|---|
| Steel: BF-BOF | 2.36 tCO2/t (CCTS FY2023-24) | ~1.8 to 2.0 tCO2/t | ~1.6 tCO2/t | ~1.4 tCO2/t | Above global avg. A 15 to 40 percent gap due to aging fleets and low waste heat recovery. |
| Steel: EAF (grid) | ~1.2 to 1.4 tCO2/t | ~0.6 to 0.9 tCO2/t | ~0.5 to 0.8 tCO2/t | <0.3 tCO2/t | Above peers. Driven largely by India's coal-heavy grid, but improves alongside grid decarbonisation. |
| Steel: EAF (RE-powered) | <0.3 tCO2/t (Tata Ludhiana) | ~0.3 to 0.5 tCO2/t | ~0.2 to 0.5 tCO2/t | <0.1 tCO2/t (H2-DRI) | Competitive. India's EAF route with captive solar strongly matches EU performance today. |
| Primary aluminium | ~16.98 tCO2/t | ~13 to 16 tCO2/t | ~8 to 12 tCO2/t | ~4 to 7 tCO2/t | Significantly above peers. Captive coal power acts as the primary culprit; RE transition remains critical. |
| Aluminium (25% RE blend) | ~13 to 14 tCO2/t | ~13 to 16 tCO2/t | ~8 to 12 tCO2/t | ~4 to 7 tCO2/t | Approaching China. Each 25 percent slice of RE eliminates approximately 3 to 4 tCO2/t. |
| Urea and fertilisers | ~1.4 to 2.6 tCO2/t | ~1.5 to 2.0 tCO2/t | ~1.5 to 2.0 tCO2/t | <0.5 tCO2/t (green ammonia) | Broadly comparable. The gap relates primarily to gas costs rather than process inefficiency. |
| Cement (OPC) | ~0.56 tCO2/t | ~0.58 to 0.65 tCO2/t | ~0.60 to 0.65 tCO2/t | ~0.40 tCO2/t | Competitive. Driven by advanced dry process technology, cement avoids acting as a competitiveness liability. |
Two clear conclusions emerge from this comparison. First, India's deepest carbon intensity gaps impact primary aluminium and BF-BOF steel, marking the exact sectors where CBAM applies the highest financial pressure. By contrast, cement is not a CBAM liability in the traditional competitiveness sense since India's operational efficiency often outpaces both the global average and the European Union. Second, the technologies capable of closing these gaps the fastest, such as EAF steel fed by renewable electricity and aluminium supplemented by captive solar, are already commercially viable and scaling rapidly. India's competitiveness gap is not a permanent structural defect. It is directly tied to incumbent technology vintages and the pace of the ongoing renewable energy transition. CCTS and CBAM together supply the explicit financial incentives necessary to accelerate both.
The CBAM cost differential: What verified data is truly worth
The CBAM default value for Indian steel is set at 4.32 tCO2 per tonne. This number represents a weighted average of India's entire steel production environment, merging highly efficient EAF plants with heavily polluting, older BF-BOF plants. The figure is intentionally punitive. By attaching a 10 percent mark-up in 2026, which scales to 30 percent by 2028, the EU ensures that utilizing default values becomes exceptionally expensive, practically forcing importers to demand verified, actual emission data from their Indian suppliers. The visualization below models exactly what this means commercially for an Indian BF-BOF exporter wielding verified data versus one left exposed to default rates.
Total: 4.752 tCO2/t
Cost at €65/tCO2e
Total: 2.36 tCO2/t
Cost at €65/tCO2e
Offset: Rs 800 (~€8.9)
Total: <0.3 tCO2/t
Total: ~1.85 tCO2/t
With verified actual data, the financial gap between China and India sits around €33 per tonne in 2026. While significant, this gap is not commercially fatal for quality-differentiated Indian steel products. However, the gap between an Indian producer using default values and a Chinese competitor using verified data widens to approximately €188 per tonne. This extreme variance makes standard steel exports commercially unviable. It is precisely why industry leaders describe CBAM as a data problem before a carbon problem. Closing the raw technological carbon gap takes years of capital deployment, but installing the MRV systems needed to bypass default values takes only months.
The September 2025 EU-India Strategic Agenda officially confirmed that India's verified CCTS carbon price payments can be deducted directly from CBAM certificate obligations. To qualify, a plant must remain an obligated and compliant entity under CCTS, feature an ACVA-verified CCTS GEI target, and properly document the payment rate. Assuming a CCTS price of Rs 800 per tCO2e (roughly €8.9) measured against the EU ETS at €65 per tCO2e, the deduction covers about 14 percent of total CBAM exposure. For an Indian BF-BOF facility paying CCTS duties, the net CBAM burden falls from roughly €56 to €47 per tonne in 2026. While seemingly modest, it is a tangible, commercially material reward for participating in the CCTS, and its value will automatically scale as CCTS prices rise in later phases. Importantly, this deduction is exclusively available to entities with fully verified GEI reports, proving again that CCTS MRV represents a strategic commercial investment rather than mere bureaucratic compliance.
The domestic carbon price gap and investment strategy
The expected Phase 1 CCTS price of Rs 600 to Rs 900 per tCO2e equates to just USD 7 to USD 11, or roughly €6 to €10. This is the actual financial carbon signal Indian executives must navigate domestically. While this level generates real compliance pressures and validates Carbon Credit Certificates for top performers, it remains fundamentally insufficient on its own to drive massive, capital-intensive shifts like H2-DRI for steel, comprehensive carbon capture for cement, or full renewable energy overhauls for aluminium processing. These are the exact technologies required to eliminate India's carbon intensity gap by 2030 to 2035.
Consider the European context. Even an EU ETS price near €65 per tCO2e required extensive supplemental public financing, Horizon grants, and Contracts for Difference to properly catalyze green steel and aluminium investments. Therefore, an Indian carbon price hovering at 10 to 15 percent of the European equivalent cannot realistically drive sweeping technological transitions single-handedly. However, the system still functions effectively for its intended developmental phase. CCTS enforces the creation of verifiable, plant-level GHG data vital for CBAM, financially rewards relative efficiency improvements, and signals to capital markets that India's carbon compliance framework will steadily tighten.
Recognizing these limitations is not an excuse for inaction. It simply clarifies that domestic carbon pricing must be paired seamlessly with robust public capital programs like the National Mission for Sustainable Steel, credit guarantees, and green public procurement initiatives to bridge the financial divide.
A striking 92 percent of the steel capacity expansion needed for India to reach 300 Mtpa remains unbuilt. This blank canvas poses immense risk and unprecedented opportunity. Building new BF-BOF capacity permanently locks in a 2.36 tCO2 per tonne intensity gap for decades, worsening CBAM exposure as EU carbon prices inevitably climb through 2034. Conversely, committing to EAF pathways supported by renewable energy closes the gap at commercially viable levels today. Modern EAF-scrap processes driven by a 50 percent RE blend can achieve 0.4 to 0.6 tCO2 per tonne, beating out existing BF-BOF averages seamlessly. Projects like the JSW Kadapa greenfield EAF exemplify this proactive shift. Aligning financing rates, CCTS incentives, and green taxonomy benefits directly with this emerging EAF pipeline represents the single most vital industrial policy action for India over the next three years. The country can neutralize the steel carbon intensity gap by steering expansion correctly, rather than absorbing the staggering costs of retrofitting outdated fleets.
What the 2035 NDC demands
India's 2035 Nationally Determined Contribution, officially approved by the Union Cabinet on March 25, 2026, guarantees a 47 percent reduction in GDP emissions intensity from 2005 levels and aims for 60 percent non-fossil electricity capacity. The groundwork is strong. Between 2005 and 2020, India aggressively reduced its GDP emissions intensity by roughly 36 percent, eclipsing prior milestones ahead of schedule. While ambitious, the 2035 commitments rest on a highly credible track record.
For heavy industries tracking carbon, the 2035 NDC translates into demanding requirements. The International Energy Agency calculates that hard-to-abate sectors must sustain a 2.5 to 3.5 percent annual GEI reduction to remain aligned with 1.5-degree pathways. The CCTS Phase 1 program, however, targets only a 1 to 3 percent annual reduction in its opening years. The pressure to close this gap will fall heavily on Phase 2 (FY2027-28 to FY2029-30) and Phase 3 (FY2030-31 onwards) target settings. The Bureau of Energy Efficiency will tightly calibrate these future demands based on incoming Phase 1 MRV data and technology maturity signals.
The submission of five-year climate action plans in April 2026 represents a critical milestone. It is the exact moment the CCTS framework captures realistic, on-the-ground technology and investment roadmaps from obligated entities. These aggregated plans will form the most authoritative view of India's actual decarbonisation trajectory. Crucially, these are the identical documents that foreign investors, CBAM verifiers, and CSRD-reporting European buyers will demand to see. An effective five-year action plan submitted through the ICM Portal solves a CCTS compliance obligation, an investor relations inquiry, and a CBAM risk management issue all at once.
Frequently Asked Questions
How does India's steel carbon intensity compare to China and the EU?
India's BF-BOF sector averages 2.36 tCO2 per tonne based on the CCTS gazette for FY2023-24. For comparison, China's best practice rests at roughly 1.8 to 2.0 tCO2 per tonne, while the EU averages around 1.6 tCO2 per tonne. However, India's EAF sector combined with captive renewable energy operates below 0.3 tCO2 per tonne, beating EU benchmarks outright. Additionally, India's cement sector operates competitively, sitting below many global averages at roughly 0.56 tCO2 per tonne.
What is the commercial impact of CBAM default values for Indian steel exporters?
India's CBAM default sits at 4.32 tCO2 per tonne, which climbs to 4.752 tCO2 per tonne with the 2026 10 percent mark-up. Calculating net CBAM costs utilizing these defaults reveals a penalty of approximately €211 per tonne. Conversely, using verified actual data at 2.36 tCO2 per tonne reduces the penalty to roughly €56 per tonne. This €155 per tonne discrepancy is the central commercial driver necessitating immediate MRV investments.
How does India's CCTS carbon price relate to the EU ETS?
The CCTS Phase 1 price is anticipated to range from Rs 600 to Rs 900 per tCO2e (about €6 to €10), remaining 6 to 10 times below the EU ETS price of €65 per tCO2e. Fortunately, the EU-India Strategic Agenda of September 2025 confirmed that CCTS payments can be deducted directly from CBAM obligations. For compliant exporters, this deduction covers roughly 13 to 15 percent of remaining CBAM liabilities at current CCTS pricing, and will scale accordingly as domestic prices rise.