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CBAM · Cross-Cutting · Breaking AnalysisCBAM Downstream Expansion 2028: The EU ENVI Draft Proposes 180 New Products From January 2028 — and India’s Auto Components, Machinery, and MSME Exporters Are Directly in Scope
On April 10, 2026, the European Parliament’s Committee on the Environment, Climate and Food Safety published a draft report proposing five significant changes to the CBAM framework. The most consequential change for India is the proposal to extend CBAM to approximately 180 additional steel and aluminium-intensive downstream products from January 1, 2028. Auto components, fabricated metal products, machinery parts, tubes, pipes, fasteners, power transformers, and aluminium containers are all within the proposed scope. One third of India’s downstream steel exports — worth at least $1.1 billion per year to the EU — are produced by MSMEs that rely on grid electricity and have no captive power or emissions monitoring infrastructure. A second proposed change directly threatens India’s low-carbon safe harbours: the ENVI draft proposes including pre-consumer scrap emissions in CBAM calculations, which would reduce the competitive advantage that India’s secondary aluminium and scrap-EAF steel sectors currently enjoy. India has less than 21 months to prepare. This article maps what the ENVI downstream expansion covers, which Indian sectors and geographies face the highest exposure, how the pre-consumer scrap rule change affects secondary producers, and what every Indian exporter of downstream steel and aluminium goods must do before January 2028.
The ENVI draft report of April 10, 2026, builds on the European Commission’s December 17, 2025, proposal to extend CBAM to approximately 180 steel and aluminium-intensive downstream products from January 1, 2028. The Commission’s original motivation was clear: rising costs for steel and aluminium used in downstream production risked shifting manufacturing to countries with weaker climate policies. The ENVI committee’s draft endorses this expansion and proposes additional amendments. If adopted through the EU’s ordinary legislative procedure, the expansion applies from January 2028. India has less than 21 months to prepare its downstream exporters, particularly MSMEs who have no captive power, no emissions monitoring, and no CBAM compliance infrastructure.
The 180 proposed downstream products span seven major categories. First: vehicle and transport components — gear boxes, chassis, brakes, and structural assemblies used in automobiles and commercial vehicles. Second: household appliances — refrigerators, washing machines, and cooking equipment containing steel or aluminium as functional components. Third: construction and infrastructure products — power transformers, cables, structural sections, and fasteners. Fourth: industrial equipment — farming machinery, pumps, compressors, heat exchangers, and industrial storage tanks. Fifth: fabricated metal products — tubes, pipes, structural components, containers, and aluminium housings. Sixth: machinery parts — precision components, fittings, and sub-assemblies supplied into EU manufacturer supply chains. Seventh: electrical goods — power cables and connectors where steel or aluminium form a structural role. The Commission’s own analysis states that 94% of the proposed 180 products are heavy machinery and specialised equipment — not consumer goods.
The pre-consumer scrap rule change is the second proposed change in the ENVI draft that directly affects India’s industrial decarbonisation sectors. Under current CBAM rules, aluminium or steel produced using pre-consumer scrap — manufacturing offcuts, processing waste, and internal recycled material — benefits from the secondary production route benchmark of 0.139 tCO₂e per tonne for aluminium (versus 1.464 tCO₂e per tonne for primary). The ENVI draft proposes tightening carbon accounting for scrap-based production by including emissions from pre-consumer scrap inputs. This change would reduce the competitive advantage of secondary aluminium and scrap-EAF steel producers who currently rely on pre-consumer scrap as their primary feedstock. The commercial implication is straightforward: India’s secondary aluminium sector, which currently sits well below the CBAM secondary benchmark, would face a higher calculated embedded emission if pre-consumer scrap emissions are included.
India’s MSME exporters face the highest structural vulnerability from the downstream expansion. About one third of India’s downstream steel product exports to the EU are produced by MSMEs. These producers are concentrated in Pune, Rajkot, Coimbatore, and Faridabad — auto components, engineering goods, and fabricated metal hubs. MSMEs depend entirely on state grid electricity, which runs at approximately 0.71 tCO₂/MWh in India. They cannot demonstrate captive renewable power, they do not have CBAM monitoring methodology documents, and they have no relationship with EU-accredited verifiers. Under the downstream expansion, every MSME exporter of a product containing steel or aluminium as a functional component will need to calculate and verify the embedded emissions of that product — including the steel or aluminium input it purchased from a domestic supplier. This supply chain traceability requirement is the most technically complex aspect of the downstream expansion for Indian industry.
The ENVI draft also proposes examining the expansion of CBAM to indirect emissions — Scope 2 electricity use — across more sectors beyond aluminium. Currently, CBAM includes Scope 2 indirect electricity emissions only for aluminium production. The ENVI proposal would study extending this to other sectors covered by the downstream expansion. For India, this is the most commercially threatening long-term proposal. India’s grid emission factor of 0.71 tCO₂/MWh is one of the highest among major steel and aluminium producing nations. If Scope 2 electricity is included in CBAM calculations for machinery, auto components, and fabricated metals, the embedded carbon cost of Indian downstream goods rises significantly — even for products that use relatively little steel or aluminium per unit of output.
What the ENVI draft proposes — the five changes and what they mean
The April 10, 2026, ENVI draft report responds to the European Commission’s December 17, 2025, legislative proposal on CBAM scope expansion. It is a draft report at the European Parliament committee stage — it has not yet been adopted by the full Parliament or enacted into law. However, the ENVI committee’s position carries substantial weight in the EU’s ordinary legislative procedure, and the five proposed changes are directionally very likely to shape the final CBAM expansion regulation. Indian exporters should plan for these changes as probable from 2028, not as speculative future risk.
| Change | What it proposes | India impact | Status |
|---|---|---|---|
| 1. Downstream product scope expansion | Extend CBAM to ~180 steel and aluminium-intensive downstream products from January 1, 2028. Covers car parts, appliances, machinery, cables, fabricated metals, industrial equipment. | High At least $1.1 billion of Indian EU exports fall in scope. Auto components, engineering goods, and MSME-dominated fabricated metals all affected. | EC proposed December 2025. ENVI endorsed April 2026. Ordinary legislative procedure ongoing. |
| 2. Pre-consumer scrap accounting | Tighten carbon accounting for scrap-based production. Include emissions from pre-consumer scrap inputs — manufacturing offcuts and processing waste — in CBAM embedded emission calculations. | Medium Reduces competitive advantage of secondary aluminium and scrap-EAF steel sectors. Post-consumer scrap (end-of-life) remains near-zero. Pre-consumer scrap now carries a calculated emission. | ENVI proposed. Currently primary aluminium benchmark (1.464 tCO₂/t) vs secondary (0.139 tCO₂/t) — gap may narrow. |
| 3. Scope 2 indirect emissions expansion | Examine extending CBAM to indirect emissions from electricity use across more sectors. Currently Scope 2 applies only to aluminium. | Very High (if adopted) India’s grid EF of 0.71 tCO₂/MWh is among the highest globally. Scope 2 extension to downstream sectors would significantly increase CBAM costs for Indian MSME exporters using grid power. | Proposed for examination — not yet a firm legislative proposal. Likely 2029-2030 horizon if adopted. |
| 4. Anti-circumvention measures | Additional reporting obligations and evidence requirements where there is high risk of abusive practices — including re-routing of CBAM goods through third countries to avoid compliance. | Low-Medium Primarily targets deliberate circumvention. Legitimate Indian exporters face additional documentation burden rather than cost increase. | Already included in Commission’s December 2025 proposal. ENVI endorses. |
| 5. Mutual recognition of accreditation bodies | Enable mutual recognition of reliable accreditation bodies globally — reducing verification cost and access barriers for exporters in countries with strong national accreditation infrastructure. | Positive NABCB (India’s national accreditation body) could potentially be recognised — reducing verification cost for Indian exporters and enabling more Indian verifiers to access CBAM accreditation. | Commission and ENVI both support. India should pursue NABCB-EU mutual recognition as a diplomatic priority. |
India’s sector-by-sector downstream exposure
The downstream expansion moves CBAM from a tax on raw materials into a tax on manufactured industrial goods. The shift is commercially significant for four Indian sectors that previously sat outside CBAM’s financial reach.
| Sector | EU export value (est.) | Key geography | CBAM exposure from 2028 | Primary challenge |
|---|---|---|---|---|
| Auto components | ~27% of total output to EU — approximately $2-3 billion annually | Pune, Chennai, Faridabad, Gurugram | High Gear boxes, chassis, brake components, structural assemblies — all in proposed scope. | Steel and aluminium embedded in components must be traced to origin producer and verified. Large OEM suppliers have this capability. Tier 2 and Tier 3 MSME suppliers do not. |
| Fabricated metal products | $800 million-$1.2 billion to EU annually | Rajkot, Ludhiana, Coimbatore | Very High Tubes, pipes, fasteners, structural sections — core products of the proposed 180. | MSMEs dominate this segment. They buy steel from domestic mills, process it, and export to EU. Under downstream CBAM, they must obtain verified embedded emission data from their steel supplier — a new and unfamiliar requirement. |
| Industrial machinery and equipment | $600-900 million to EU annually | Coimbatore, Pune, Ahmedabad | Medium-High Pumps, compressors, agricultural machinery, heat exchangers — 94% of the 180 products are this category. | Emissions monitoring for machinery is complex — steel and aluminium components come from multiple domestic and imported suppliers. Traceability across the input supply chain is the primary challenge. |
| Electrical goods and cables | $300-500 million to EU annually | Nashik, Aurangabad, Hyderabad | Medium Power transformers, cables, and connectors where steel or aluminium form a structural role are proposed in scope. | Aluminium cables face the highest exposure given aluminium’s CBAM Scope 2 inclusion and the possibility of Scope 2 extension to downstream electrical goods. |
About one third of India’s downstream steel product exports to the EU are produced by MSMEs. These producers face three structural disadvantages under the downstream CBAM expansion that large integrated producers do not. First: they purchase steel and aluminium from domestic mills and have no visibility into the embedded emissions of those inputs — under downstream CBAM, they will need to obtain verified embedded emission data from every input supplier, which requires those suppliers to have CBAM MRV systems in place. Second: they use state grid electricity at 0.71 tCO₂/MWh, with no captive renewable power and no ability to cost-effectively switch. If Scope 2 is extended to downstream sectors, their production-stage electricity emissions will add a further CBAM cost layer. Third: CBAM compliance — establishing a monitoring methodology document, engaging an accredited verifier, and providing verified data to EU importers — costs Rs 5-15 lakh per installation per year. For an MSME with annual EU revenues of Rs 50-100 lakh, this compliance cost is 5-15% of revenue. FISME (Federation of Indian MSME) has already flagged this as an existential challenge for MSME exporters. The government must move quickly to provide pooled verification services, shared monitoring platforms, and access to green grid power for MSME industrial clusters in CBAM-exposed sectors.
The pre-consumer scrap rule change — what it means for secondary aluminium and scrap-EAF steel
Under current CBAM rules, the secondary aluminium benchmark of 0.139 tCO₂e per tonne applies when more than 50% of the aluminium input is sourced from scrap. This benchmark assumes near-zero embedded emissions for the scrap input itself — because scrap has already fulfilled a previous lifecycle and the carbon cost of original production has been allocated to that prior use.
The ENVI draft proposes including emissions from pre-consumer scrap — manufacturing offcuts, processing waste, and internal recycled material generated during industrial production — in the CBAM embedded emission calculation. Pre-consumer scrap is different from post-consumer scrap (end-of-life vehicles, demolished buildings, used cans): it is generated within the production process itself and has never served its intended functional purpose.
India’s secondary aluminium sector currently produces at approximately 0.3 tCO₂/t — well below the secondary CBAM benchmark of 0.139 tCO₂/t when efficient gas remelting is used. However, a significant portion of Indian secondary aluminium production uses pre-consumer scrap — manufacturing offcuts from auto component plants, packaging converters, and cable manufacturers — as feedstock. If the ENVI proposal is adopted, the embedded emissions of this pre-consumer scrap input would be added to the secondary producer’s CBAM calculation, raising their verified embedded emission above the 0.139 tCO₂/t benchmark and eliminating the CBAM near-zero cost advantage. The immediate response for Indian secondary producers is to audit their scrap input mix — how much is post-consumer versus pre-consumer — and model the CBAM liability impact of the proposed rule change. Producers who can shift their feedstock toward post-consumer scrap (which retains near-zero embedded emissions under any rule) will be best positioned for 2028. This is also a strong argument for India to accelerate its end-of-life vehicle scrapping infrastructure and expand the formal aluminium post-consumer scrap collection system.
The action checklist — what Indian downstream exporters must do before January 2028
Frequently Asked Questions
Which Indian products will be covered by CBAM from January 2028?
The European Commission’s December 2025 proposal, endorsed by the ENVI committee on April 10, 2026, covers approximately 180 steel and aluminium-intensive downstream products. Key categories include vehicle components (gear boxes, chassis, brakes), household appliances (refrigerators, washing machines), industrial equipment (pumps, compressors, farming machinery), fabricated metal products (tubes, pipes, fasteners, structural components), power transformers, cables, and aluminium containers. For India, the highest-exposure sectors are auto components (approximately 27% of output goes to the EU), fabricated metal products (dominated by MSMEs in Rajkot and Ludhiana), and industrial machinery (Coimbatore and Pune). The Commission states that 94% of the proposed 180 products are heavy machinery and specialised equipment — not consumer goods. Full product codes are in the Annex to the Commission’s draft regulation of December 17, 2025.
How does the pre-consumer scrap rule change affect India’s secondary aluminium sector?
Currently, secondary aluminium produced using more than 50% scrap input qualifies for the CBAM secondary benchmark of 0.139 tCO₂e per tonne — compared to 1.464 tCO₂e per tonne for primary aluminium. This benchmark assumes near-zero embedded emissions for the scrap input. The ENVI draft proposes including emissions from pre-consumer scrap — manufacturing offcuts and processing waste — in the embedded emission calculation. Pre-consumer scrap carries the embedded emissions of the production process that generated it. This change would raise the calculated embedded emission for secondary aluminium producers who rely on pre-consumer scrap feedstock, reducing their CBAM cost advantage. Post-consumer scrap (end-of-life products) would likely retain near-zero status. Indian secondary producers should audit their scrap input mix immediately and model the financial impact of the proposed change on their specific production profile.
What must an Indian MSME exporter do to prepare for the 2028 downstream CBAM expansion?
Five steps in sequence. First: by June 2026, map your EU export product HS codes against the Commission’s proposed Annex of 180 downstream products to confirm whether you are in scope. Second: by September 2026, contact your steel and aluminium input suppliers and request their CBAM verified embedded emission data. Third: by December 2026, draft a monitoring methodology document for your installation. Fourth: by Q1 2027, engage an EU-accredited verifier — Bureau Veritas India, TÜV India, DNV India, or SGS India — and schedule a physical site visit. Fifth: by Q2 2027, sign a data-sharing agreement with your EU importer specifying the format and timeline for verified emissions data delivery. MSMEs in CBAM-exposed clusters should also engage FISME, EEPC, and their state government to push for pooled verification services and access to renewable grid power at preferential rates — both of which reduce the per-unit compliance cost of CBAM for smaller producers.