EU Carbon Tax Expansion Hits Exporters from 2028

Indian exporters are on edge as the European Union gears up to expand its Carbon Border Adjustment Mechanism (CBAM)—the bloc’s carbon tax—from January 2028, folding in nearly 180 additional steel- and aluminium-based products into its emissions net.

Launched in transitional reporting mode since October 2023, CBAM goes fully live January 1, 2026, initially slapping duties on imports of cement, iron/steel, aluminium, fertilisers, hydrogen, and electricity to match EU Emissions Trading System (ETS) costs and stem “carbon leakage.” The 2028 push, per European Parliament drafts, targets downstream goods like heavy machinery, vehicle parts, cylinders, radiators, and casting equipment—where steel/aluminium comprise 79% of value—closing loopholes that let polluters reroute high-emission intermediates.

India is in the middle of it all. Steel alone accounts for 90% of CBAM-covered EU exports ($8 billion annually), with aluminium and machinery adding $800 million. Provisional levies already hover at €25-50/tonne for Indian steel (2.1 tCO2/tonne vs EU’s 1.2), and expansion could tack 15-25% onto landed costs, squeezing margins for MSMEs dominating 80% of shipments. FIEO warns of 10-20% volume drops in engineering/auto ancillaries unless emissions drop via green steel or credits.

Compliance ramps up pressure. From 2026, importers submit quarterly embedded emissions data—verified or default EU values—with certificates bought at ETS auction prices (€80-100/tonne CO2). A 50-tonne threshold spares tiny consignments, but audits burden SMEs. India eyes WTO challenges for “discriminatory” design, as coal-heavy production inflates bills versus renewables-led rivals like Turkey.

Sagarmala offers lifelines: green ports at JNPA/Mundra with shore power slash Scope 3 logistics emissions 25%, aiding CBAM calcs for containerised goods. PLI 2.0’s ₹18,000 crore fuels low-carbon blast furnaces (JSW/Tata targeting 20 mtpa by 2030), while PAT scheme banks credits for offsets. Diversification to ASEAN/Africa—where tariffs average 5%—cushions 30% EU exposure.

Globally, ripples intensify: China braces €5 billion steel hits; Brazil decries aluminium wipeouts. EU revenue—€2 billion by 2030—funds 25% manufacturer rebates for decarbonisation, per drafts. Retaliation brews: India’s domestic CBAM proposal mirrors the play.

CBAM’s evolution underscores net-zero trade wars: EU’s 90% emissions slash by 2040 pressures 1.4 billion tonnes from emerging economies, reshaping maritime flows with low-carbon premiums. For Indian ports handling 1.7 billion tonnes, it’s a pivot to sustainable cargo—hydrogen pilots at Kandla and electrified DFCs key to staying competitive.