Impact of EU’s Carbon Border Adjustment Mechanism (CBAM) on Indian Steel Exporters

India’s small steel exporters are experiencing significant challenges due to the implementation of the European Union’s Carbon Border Adjustment Mechanism (CBAM), which entered its payment phase on January 1. The absence of concessions in the recently signed free trade agreement with the EU has exacerbated these disruptions.

CBAM Compliance Issues

• CBAM is designed to impose a "fair price" on carbon in imports exceeding 50 tonnes/year.
• Indian consignments have been seized at European ports for missing compliance details.
• Significant order cancellations have occurred due to increased costs from CBAM.

Economic Impact

• The EU accounts for 32-45% of India’s annual steel exports (2-4 million tonnes).
• Export volumes and profitability may be constrained due to CBAM, as per a report by Icra.
• Indian exporters might need to cut prices by 15-22% to maintain EU market access.

Challenges for MSMEs

• Approximately 25,000-30,000 MSMEs are now at risk due to CBAM.
• Carbon levies for MSMEs have increased to 240-300 euros per tonne.
• The lack of reliable carbon data across supply chains is a major hurdle.

Response from Indian Exporters

• MSMEs are struggling to meet stringent compliance requirements.
• Efforts include shifting to biodegradable oils and incorporating solar energy, raising production costs by 5-8%.

Structural Challenges

• Even India's cleanest steel emits more CO2 than the EU's tax-free benchmark.
• The compliance burden is disproportionately high for MSMEs, threatening their competitiveness.