The EU Carbon Border Adjustment Mechanism entered its definitive financial phase on 1 January 2026. For Indian steel exporters with EU customers, this is not a future planning scenario. The carbon levy is accumulating now, the first certificate surrender deadline is 30 September 2027, and EU buyers are already factoring emission intensity into their procurement and pricing decisions. The commercial dynamics have shifted and the gap between producers who have prepared and those who have not is widening every quarter.

This article examines what CBAM specifically means for the Indian steel sector — the emission intensity gap that drives the exposure, the cost per tonne at different carbon price scenarios, the product-level variation in market risk, the decarbonisation pathways available and what they cost, and the domestic policy architecture that will determine how the next decade plays out. For the broader CBAM framework and India’s strategic response, see Carbon Border Adjustment Mechanism and Its Impact on Indian Industry. For the operational compliance process, see How the Carbon Border Adjustment Mechanism Works.

The structural problem: India’s emission intensity gap

The CBAM levy on Indian steel is not the result of bureaucratic discrimination. It is the direct financial consequence of a structural characteristic of India’s steel industry: most of India’s steel is produced via the blast furnace-basic oxygen furnace route using metallurgical coal, and that route generates substantially more CO₂ per tonne of finished steel than the routes that dominate production in countries with lower CBAM exposure.

The 0.73 tCO₂ gap between India’s average BF-BOF intensity and the EU CBAM benchmark is the number that determines the financial exposure at the installation level. At the confirmed Q1 2026 CBAM certificate price of €75.36 per tonne — the first officially published price, calculated as the quarterly average of EU ETS auction clearing prices — that gap translates into a CBAM obligation of approximately €55 per tonne for typical Indian hot rolled coil using verified actual emissions data. Without verified data, EU default values push this to approximately €254 per tonne, as confirmed by Fastmarkets analysis of Q1 actual prices.

Two other figures from the Ministry of Steel deserve attention. The domestic steel sector accounts for 12% of India’s total greenhouse gas emissions. And India’s average emission intensity — including both BF-BOF and secondary production — is 2.55 tCO₂ per tonne of crude steel, which is 12% above the global average of approximately 1.9 tCO₂ per tonne according to official data cited by Steel Secretary Sandeep Poundrik. The discrepancy between the 2.55 sector average and the 2.1 typical BF-BOF installation figure reflects the contribution of secondary sector EAF and induction furnace production to the average, pulling the overall number slightly higher than BF-BOF alone.

What makes this structural exposure particularly challenging is the investment timeline. BF-BOF assets in India have an average age of just 18 years. These facilities were built with operational lifespans of 40 to 60 years. CBAM creates accelerated stranding risk for assets that are less than halfway through their intended operational lives — which is the definition of a complex financial and strategic problem for companies that made investment decisions before the carbon cost landscape looked like this.

The cost per tonne — across carbon price scenarios and timelines

The financial cost of CBAM for Indian steel exporters depends on three variables: the carbon intensity of the specific installation, the EU ETS price at the time, and the free allocation factor applicable in that year. All three are changing, and not in a direction that makes the problem easier.

Sources: Global Efficiency Intelligence medium and high scenarios; Fastmarkets projection of EU ETS reaching €130/t by 2030; Rystad Energy high scenario of USD 397/t at 2034 full phase-out; ICRA range of USD 60 to 165/t across 2026 to 2034. Q1 2026 confirmed certificate price: €75.36/tCO₂ (European Commission, 7 April 2026).

The KPMG analysis cited in Metalbook’s research adds a useful commercial framing: CBAM could increase the effective costs of EU steel exports by between 20% and 35% depending on product and production methodology. At current average Indian emission intensity, a conservative EU carbon price of €80 per tonne CO₂ translates into additional costs of €200 per tonne — or between Rs 11,000 and Rs 16,500 per tonne in Indian currency at current exchange rates — for commodity steel products like hot rolled coil. At thin commodity margins, this is the difference between profit and loss on EU-bound shipments.

India’s disproportionate exposure in global context

India is expected to bear 18% of total global CBAM costs on steel — nearly double its share of EU import value — according to Fastmarkets analysis. This disproportionate burden reflects two converging factors: India’s dependence on blast furnace steelmaking and the current absence of a recognised domestic carbon price that could offset CBAM obligations.

Steel exports from India to the EU had already fallen more than 31% in the first eight months of 2025 compared to the same period in 2024, indicating that market anticipation of CBAM is reshaping procurement decisions before the financial obligations have fully activated. EU buyers are already baking emission intensity into procurement decisions and pricing negotiations. By 2032, Indian steel exporters will face a 32% cost increase under CBAM — the steepest increase of any major exporting country globally, according to BCG analysis cited by CO2 AI.

The exposure is not evenly distributed across products. CO2 AI’s product-level analysis is useful here: 95% of India’s cold rolled coil annealed exports go to Europe, and 80% of coated steel products like galvanised and value-added materials target EU markets. These products command significant premiums in Europe that are simply not replicated in Asian or Middle Eastern markets. For producers in downstream flat steel, CBAM creates the most acute commercial pressure because there is no easy market substitution. For hot rolled coil, where roughly 50% of exports target Europe with only approximately USD 30 per tonne price gap between EU and Asian markets, there is more commercial flexibility to redirect volumes — but that flexibility disappears as CBAM costs escalate toward 2034.

The CCTS dimension — why India’s domestic carbon market matters for CBAM

India’s Carbon Credit Trading Scheme includes the iron and steel sector within its nine-sector framework. However, as of early 2026, final GHG emission intensity targets for iron and steel are still pending notification from the Bureau of Energy Efficiency — meaning active compliance obligations for steel producers are not yet in force, though the framework and baseline year (2023-24) are established. This matters for CBAM for a reason that is frequently overlooked: the CBAM regulation explicitly allows a carbon price already paid in the country of origin to be deducted from the certificate obligation in the EU.

If India’s CCTS is developed to a sufficient standard and recognised by the European Commission as an equivalent carbon pricing mechanism, Indian steel exporters could use their domestic CCTS carbon costs to offset part of their CBAM obligation — keeping that revenue within India rather than surrendering it to EU national authorities. CSEP research estimates this could be worth approximately 1% of GDP by 2030. The development of a credible, robust domestic carbon market is therefore not just a domestic climate policy question for the steel sector — it is a direct financial interest that reduces the net CBAM burden on every tonne of steel exported to Europe.

Once the CCTS framework for steel is operationalised with notified targets, early movers who achieve lower emission intensities will not just avoid CBAM costs — they will generate tradable credits in India’s domestic carbon market that can be sold to under-performers, creating a direct financial return on decarbonisation investment. As CO2 AI notes, companies that achieve lower emission intensity before the market fully operationalises are positioned to monetise that performance twice: once through avoided CBAM costs at the EU border and once through credit sales in the domestic CCTS.

India’s Green Steel Taxonomy — the compliance framework

The Ministry of Steel introduced India’s Green Steel Taxonomy in December 2024, establishing emission thresholds that function as a domestic green steel classification system. Steel produced with CO₂ emissions below 2.2 tCO₂ per tonne of finished steel qualifies as green and carries a minimum three-star rating. Below 2.0 tCO₂ per tonne earns a four-star rating. Below 1.6 tCO₂ per tonne earns a five-star rating.

The Ministry of Steel has also set a target to reduce the sector’s average emission intensity from 2.65 tCO₂/t (the starting level) to 2.20 tCO₂/t by 2029-30 — a reduction of approximately 17% in five years. This is meaningful but it does not close the gap to the EU CBAM benchmark of 1.37 tCO₂/t for blast furnace steel. The taxonomy provides a framework for measuring progress and communicating it to EU buyers, but reaching the five-star threshold requires fundamental production route changes — not just incremental efficiency improvements.

Complementing the taxonomy is the Green Steel Public Procurement Policy, which from FY28 will require minimum quantities of green steel on government projects. This creates a domestic demand signal that gives producers a commercial incentive to achieve taxonomy ratings independent of EU export pressure. Combined with the SCALES programme providing financial incentives for green steel technology adoption, India is assembling a domestic architecture around green steel that creates multiple simultaneously operative reasons to decarbonise.

The decarbonisation pathways — what they cost and what they deliver

India’s steel sector faces a genuinely complex technology transition challenge. The majority of production relies on BF-BOF using metallurgical coal, of which India imports approximately 90%. The iron ore available domestically is primarily lower grade — generally below the 67% Fe content required for DRI-based processes — which constrains the direct shift to DRI-EAF routes that work well in countries with higher-grade ore. New BF-BOF capacity continues to be commissioned: 66% of the 195 MTPA of new capacity in the pipeline is BF-BOF route, per Climate Policy Initiative analysis. This creates a structural momentum problem — the investment decisions of the 2020s are locking in emission intensity for decades.

India’s coal-based DRI route — which accounts for a significant share of secondary sector production — is worth particular attention. Coal-based DRI produces approximately 0.8 to 1.2 tCO₂ per tonne of DRI, compared to 0.4 to 0.6 tCO₂/t for natural gas-based DRI. The shift from coal-based to natural gas-based DRI is therefore a meaningful near-term decarbonisation step that does not require green hydrogen at scale — it just requires access to competitively priced natural gas, which itself depends on India’s LNG import infrastructure and domestic gas pricing policy.

What India’s major steel producers are doing

The strategic choices facing Indian steel exporters right now

Indian steel exporters with EU customer relationships are now navigating a set of simultaneous pressures that did not exist five years ago: CBAM levy accumulation from January 2026, EU safeguard measures on steel imports, the India-EU FTA concluded without CBAM carve-outs, rising EU scrap self-sufficiency limiting India’s EAF-route competitiveness, and EU buyer procurement policies increasingly incorporating supply chain carbon intensity requirements.

The strategic choices are clearer than the implementation is easy. Producers in downstream flat steel — cold rolled coil, coated products, value-added grades — face the most acute EU market access risk because these products have no viable price-equivalent alternative market outside Europe. For them, investment in emissions measurement, verification, and decarbonisation technology is not discretionary. Producers in commodity long products and semi-finished steel have more flexibility to redirect volumes toward Southeast Asia, the Middle East, and Africa, where CBAM does not apply — but they should be aware that the UK is introducing its own CBAM from 2027 covering the same sectors, and that other major economies may follow the EU’s architecture.

The companies that navigate this decade most effectively will be those that treat CBAM not just as a cost to be managed but as a signal about where the market is going — and position their production route, their energy procurement, and their carbon accounting infrastructure accordingly. The free allocation to EU producers reduces from 97.5% in 2026 to zero in 2034, meaning the CBAM obligation on imports rises correspondingly from 2.5% to 100%. Every year of delay in reducing emission intensity is a year of rising carbon costs at the EU border. But every year of early progress in reducing emission intensity is a year of competitive advantage in a market where that advantage is increasingly priced.

For the full regulatory context of how India’s carbon markets, energy efficiency obligations, and green hydrogen policy interact with the steel sector, see the Steel sector page and the Industrial Decarbonisation Policy Map. For India’s domestic carbon market framework, see the Carbon Markets regulatory repository.

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