India Faces EU’s Carbon Price Shock Amid Trade Talks

The EU’s CBAM has officially come into force, reshaping global trade dynamics. For India, the mechanism poses a significant challenge as exporters of steel and aluminum now face additional levies tied to embedded carbon emissions. With no domestic carbon pricing system, India risks losing competitiveness in one of its largest  export markets.

Key Highlights

• Carbon Price Impact: EU sets carbon price at €85 per tonne, applied to imports based on emissions.
• Export Pressure: Indian steel and aluminum exports worth $5.8 billion in FY2025 already declined by 24% before CBAM; margins could shrink further by 16–22%.
• GDP Effect: Analysts estimate CBAM could cost India 0.03% of GDP, with urban households most affected.
• Policy Gap: India lacks a carbon market; experts suggest a domestic carbon tax could mitigate losses and retain revenue.
• Trade Tensions: The timing coincides with India-EU free trade agreement negotiations, complicating talks and raising concerns about fairness in global climate policy.

Sources: Moneycontrol, The Economic Times, India-EU Trade Council