The European Union’s plan to significantly expand its Carbon Border Adjustment Mechanism (CBAM) and plans to charge CBAM tax on 180 new steel- and aluminium-based products from January 2028, according to a draft proposal by the European Parliament’s environment committee. This move is likely to raise the costs for a wide range of Indian manufactured exports.
In a report issued on April 10, the European Parliament’s Committee on the Environment, Climate and Food Safety (ENVI) recommended bringing more products under the scope of CBAM and proposed to include around 180 additional steel- and aluminium-based products from January 1, 2028.
The move, if approved by the European Parliament, would extend the carbon tax beyond raw materials to a broad set of manufactured goods.
The announcement came at a time when India and EU are heading to implement the freshly negotiated Free Trade Agreement by the end of this calendar year. CBAM has always been one of the major point of contention between the two sides.
CBAM is the EU’s border levy that imposes a carbon price on imports based on emissions embedded in their production, effectively acting as a climate-linked trade barrier.
India aims to scale up the export of engineering exports, including auto components, machinery, fabricated metal products, pipes, fasteners and aluminium-based goods under the FTA and the proposed expansion is likely to impact these exports cautioned experts. Think tank GTRI warned that most industrial products entering the EU could face carbon tax exposure by 2030.
The draft also proposes tighter carbon accounting rules, that are likely to include emissions from pre-consumer scrap, which could erode the cost advantage currently enjoyed by India’s scrap-based steel and recycled aluminium producers.
Further, the EU is examining the inclusion of indirect emissions from electricity use. This could significantly raise compliance costs for Indian manufacturers dependent on coal-based power.