EU CBAM 2026: Impact, Compliance and Cost Implications for Indian Steel and Cement Exporters

EU CBAM in 2026: Impact on Indian Steel and Cement Exports

The EU Carbon Border Adjustment Mechanism (CBAM) moved from its transitional reporting-only phase into the definitive financial regime on 1 January 2026. For the first time, EU importers are now buying CBAM certificates equivalent to the greenhouse gas emissions embedded in imported goods across six covered sectors — cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen. Certificate prices track the weekly average EU Emissions Trading System (ETS) carbon price, which through the first half of 2026 has traded in the €70-90 per tonne of CO2 equivalent range.

For Indian exporters, this is not a distant regulatory concern. It is a live cost imposed on every shipment into the EU. And because Indian steel and cement production is more carbon-intensive than the EU average, the CBAM cost per tonne exported is often material — enough to change the underlying export economics.

Here is the field view from a cost accountant working with Indian manufacturers in Rajasthan and the western industrial belt.

How CBAM actually works in 2026

Three moving parts define the regime:

1. The importer (EU-side) must declare embedded emissions for each covered good imported. The declaration is annual — for the first year (2026), the first CBAM declaration is due by 31 May 2027 covering the 2026 calendar year.
2. The importer must buy CBAM certificates equivalent to those emissions. Certificate price is the weekly average EU ETS auction price.
3. Free allocation of EU ETS allowances to EU domestic producers is being phased out in parallel — from 97.5% free allocation in 2026 down to 0% by 2034 — ensuring the CBAM cost is not disproportionately loaded on imports alone.

For Indian exporters, the practical consequence is that your EU customers now need certified emissions data for every tonne shipped, and they factor the CBAM cost into their landed cost calculations. That cost either compresses your realisation or shifts to the buyer’s price, depending on your negotiating position.

Why Indian steel and cement face material exposure

Indian steel production is predominantly through the Blast Furnace–Basic Oxygen Furnace (BF-BOF) route using coal-based coking. Average emissions intensity is around 2.5-2.8 tonnes of CO2 per tonne of crude steel, compared to the EU average of around 1.8-2.0 tonnes. At €80 per tonne of CO2, the additional CBAM cost on Indian BF-BOF steel exported to the EU works out to roughly €40-60 per tonne — meaningful against Indian export prices in the €700-900 per tonne band.

For cement, the intensity gap is smaller but still material. Indian OPC cement carbon intensity is around 0.85-0.95 tonnes per tonne of cement, versus EU average of around 0.70 tonnes. At €80 per tonne of CO2, the CBAM cost adds roughly €10-15 per tonne to Indian cement landed in the EU. Cement export volumes from India to EU are currently modest but the direction-of-travel matters — as EU imposes carbon-linked costs on other markets, Indian producers targeting export growth need to build low-carbon production or accept market shrinkage.

Compliance obligations for Indian exporters

• Calculate embedded emissions per tonne using CBAM methodology — direct emissions from production plus indirect emissions from purchased electricity.
• Have the emissions calculation verified by an accredited verifier — this is not self-declaration.
• Provide the verified emissions data to your EU importer for their CBAM declaration.
• Maintain the underlying data — production records, energy consumption, fuel composition — for at least five years for audit.

Strategic responses I am advising Indian manufacturers on

• Production efficiency improvements — even 10% reduction in emissions intensity through waste heat recovery, alternative fuels, or process optimisation directly reduces CBAM cost. For Rajasthan cement producers using biomass and alternative fuels, the CBAM benefit stacks on top of existing cost savings.
• Shift to lower-carbon production — green hydrogen for direct-reduced iron (DRI), scrap-based Electric Arc Furnace (EAF) route for steel, blended cements with higher fly ash content. These are capital-intensive shifts with 3-5 year payback under CBAM economics.
• Cost pass-through discipline — renegotiate EU contracts to explicitly separate the CBAM cost from the underlying product price. Absorbing CBAM silently erodes margin invisibly.
• Market diversification — for sectors where CBAM cost is prohibitive, redirect export focus to Middle East, Southeast Asia, and Africa. This is a lower-margin strategy but preserves volume.
• India-side carbon accounting — once the Indian Carbon Credit Trading Scheme matures and if the EU accepts interoperability with credible domestic carbon costs, Indian exporters may be able to offset CBAM through domestic carbon payments. This is 2027-2028 territory.

Where the Rajasthan cement belt stands specifically

Rajasthan hosts major cement capacity — Shree Cement (Beawar, Ras), JK Lakshmi Cement (Sirohi), Ultratech, Ambuja, and others across Chittorgarh and Nagaur belts. Total Rajasthan cement capacity is over 60 million tonnes per annum. Current EU cement exports from Rajasthan are limited, but two factors matter:

• If cement exports to EU grow, the CBAM cost immediately becomes a P&L line item.
• Even for domestic-market cement, the CBAM logic is spreading — the UK is designing its own CBAM (expected 2027), Japan and Korea are consulting, and India itself is exploring a domestic carbon border mechanism. Rajasthan producers preparing emissions data now are ahead of the curve.

The disciplined producers are already commissioning verified emissions calculations and modelling low-carbon transition capex. The rest are watching.

India’s government response — worth tracking

• India has formally objected to CBAM at the WTO, arguing it is a disguised trade barrier.
• An Indian Carbon Credit Trading Scheme (CCTS) is operational with progressive coverage expansion planned.
• PLI schemes for green hydrogen and low-carbon steel are being implemented with expanded outlays.
• An Indian equivalent CBAM covering imports from carbon-heavy jurisdictions is under discussion.

Closing action list for Indian manufacturers

• Commission verified emissions calculations for all export products — not just those currently going to EU.
• Build the CBAM cost into export pricing models and contract discussions.
• Prioritise emissions reduction capex where payback is under three years.
• Track India’s CCTS and any interoperability discussions with EU ETS — potential future offset.
• For Rajasthan cement and Indian steel exporters, plan for CBAM as permanent architecture, not a transitional inconvenience.

CBAM is now infrastructure. Indian exporters who treat it as an accounting nuisance will lose competitive ground steadily over the next five years. Exporters who treat it as a strategic capex signal — driving investment in cleaner production and building verified emissions discipline — will end up better positioned for a global market that is moving in the same direction, EU or not.