Archive · 2 Jan 2026
EU Carbon Tax Hurts Indian Exports
The European Union has started a new carbon tax called CBAM, which affects Indian exports of steel and aluminium.
This tax makes it more expensive for Indian companies to sell their products in the EU.
The Indian government and exporters are concerned because they might have to lower their prices by up to 22% to cover the tax.
The tax is also making it harder for smaller companies to comply with the new rules.
Some people think the tax is more about protecting European industries than helping the environment.
The Indian government is negotiating a trade deal with the EU and wants the tax to be considered in the agreement.
The EU's Carbon Border Adjustment Mechanism (CBAM) went into effect on January 1, 2026, imposing a carbon tax on imports like steel and aluminium from India.
Indian exporters may need to cut prices by 15-22% to cover the CBAM tax, with MSMEs facing the heaviest burden due to complex compliance requirements.
The Indian government views CBAM as an unacceptable non-tariff barrier and wants it addressed in the upcoming India-EU Free Trade Agreement negotiations.
CBAM is criticized by developing countries for potentially violating WTO norms and for having limited environmental benefits, reducing global CO2 emissions by only 0.1%.
Indian manufacturers are seeking government assistance to transition to cleaner production methods like arc furnaces to comply with CBAM.
- Who
- Indian exporters, particularly in steel and aluminium sectors, and the Indian government
- What
- Implementation of the EU's Carbon Border Adjustment Mechanism (CBAM) affecting Indian exports
- When
- January 1, 2026
- Where
- European Union
- Why
- To impose a levy on carbon-intensive goods entering the EU, aiming to equalize carbon costs between domestic and foreign producers
- Tax Mechanism
- Carbon Border Adjustment Mechanism (CBAM)
- Affected Sectors
- Steel, Aluminium, Cement, Chemicals, Fertilizers
- Impact on Indian Exports
- 15-22% price cut
- India-EU FTA Timeline
- Expected to be finalized this month
- India's Export Value to EU
- USD 5.8 billion in FY 2024-25
- UNCTAD's Warning
- CBAM could reduce export opportunities for developing countries
- EU's Stance on CBAM
- Not a trade measure, not on negotiating table
- Indian Manufacturers' Challenge
- Transition to arc furnaces for compliance
