India has announced that it will support domestic steel exporters affected by Europe’s carbon tax regime, even as the recently signed India-European Union trade deal leaves the bloc’s Carbon Border Adjustment Mechanism (CBAM) unchanged.

The statement from the federal secretary comes just days after India and the European Union concluded a major trade agreement that reduced tariffs across several sectors. However, despite these tariff reductions, the EU’s carbon border tax remains fully operational, creating fresh challenges for Indian steel exporters.

The development is significant because Europe is one of India’s key export markets for steel products. The implementation of CBAM means that exporters may face additional costs linked to carbon emissions embedded in their production processes.

What Is the EU’s Carbon Border Adjustment Mechanism (CBAM)?

The Carbon Border Adjustment Mechanism (CBAM) is the European Union’s policy tool designed to prevent “carbon leakage.”

Carbon leakage happens when companies move production to countries with weaker climate regulations to avoid strict environmental rules.

Under CBAM:

• Importers into the EU must declare the carbon emissions embedded in certain goods.

• They must purchase carbon certificates reflecting the EU’s carbon price.

• The mechanism applies to sectors such as steel, cement, aluminium, fertilisers, electricity, and hydrogen.

In simple terms, if Indian steel producers emit more carbon compared to EU producers, their exports may become more expensive due to the carbon charge.

Why CBAM Matters for India’s Steel Sector

India is among the world’s largest steel producers. The sector contributes significantly to:

• Industrial output

• Employment generation

• Infrastructure development

• Export revenue

Europe has traditionally been an important market for value-added steel products from India.

However, many Indian steel plants still rely heavily on coal-based production methods, which result in higher carbon emissions compared to some European producers using cleaner technologies.

As a result, CBAM could:

• Increase export costs

• Reduce price competitiveness

• Force producers to invest in greener technologies

This is why the federal secretary’s assurance of government support is being seen as a critical step.

Government’s Stand: No Industry Will Be Left Behind

The federal secretary stated clearly that India will support steel exporters impacted by Europe’s carbon tax.

Although specific policy measures have not yet been officially announced, possible support mechanisms may include:

• Financial incentives for green transition

• Carbon credit frameworks

• Subsidies for cleaner technologies

• Export promotion schemes

• Trade diplomacy efforts

The government has emphasised that India will not allow domestic industry to suffer due to unilateral environmental measures imposed by trading partners.

India-EU Trade Deal: What Changed and What Didn’t

The recent India-EU trade agreement is considered a milestone in strengthening economic relations between the two regions.

The agreement reportedly:

• Reduced tariffs across multiple sectors

• Expanded market access for Indian goods

• Encouraged services trade and investment cooperation

• Improved regulatory transparency

However, the CBAM policy was not altered or removed as part of the deal.

This means that while Indian exporters may benefit from tariff reductions, they still need to comply with carbon-related charges when exporting to Europe.

Industry observers say this creates a mixed scenario: improved access on one hand, compliance burden on the other.

Industry Reaction

The Indian steel industry has reacted with cautious concern.

Industry representatives argue that:

• CBAM acts like a non-tariff barrier.

• It increases operational complexity.

• Smaller exporters may struggle with compliance reporting.

Many companies are already preparing for carbon reporting requirements, which include detailed disclosure of emissions at different stages of production.

However, the cost of upgrading technology to reduce emissions can be substantial.

Steel manufacturers are now accelerating investments in:

• Electric arc furnaces

• Renewable energy sourcing

• Hydrogen-based steel production

• Energy efficiency upgrades

While these measures align with global climate goals, they require heavy capital investment.

The Climate vs Trade Debate

The CBAM issue highlights a broader debate between climate responsibility and fair trade.

From the EU’s perspective:

• CBAM ensures that imported goods face the same carbon costs as domestic EU producers.

• It encourages global emission reduction.

• It prevents industries from relocating to avoid carbon pricing.

From India’s perspective:

• Developed nations historically contributed more to global emissions.

• Developing countries need policy flexibility for growth.

• Carbon taxes may act as trade barriers in disguise.

India has consistently argued for climate equity and common but differentiated responsibilities in global negotiations.

The steel export challenge now brings that debate into direct trade policy impact.

Economic Impact on Indian Steel Exports

If CBAM significantly raises costs, Indian steel exports to Europe may:

• Decline in volume

• Shift toward lower-carbon product categories

• Move to alternative markets

• Face margin compression

However, some experts believe that Indian producers who invest early in green steel could gain a competitive edge in the long run.

Global buyers increasingly prefer low-carbon products, and early adaptation may open new premium markets.

India’s Green Steel Push

India has already started policy discussions around:

• Green hydrogen missions

• Renewable energy expansion

• Carbon markets framework

• Industrial decarbonisation strategies

The government’s support to exporters may also align with broader sustainability goals.

If structured properly, the response to CBAM could accelerate India’s transition toward cleaner steel production.

This may include:

• Incentivising low-carbon technology

• Encouraging public-private partnerships

• Offering concessional financing for clean upgrades

Diplomatic Engagement Continues

Officials have indicated that India will continue engaging with the European Union diplomatically on CBAM implementation details.

Key areas of discussion may include:

• Methodology of carbon calculation

• Recognition of India’s climate efforts

• Transitional arrangements

• Technical assistance

India is also likely to push for fair treatment under World Trade Organization (WTO) norms.

Long-Term Strategic View

While CBAM presents short-term challenges, it may also push Indian industry toward global competitiveness in sustainable production.

In the coming years:

• Carbon intensity may become a standard trade metric.

• Buyers may demand transparent emissions reporting.

• Sustainability could become a market differentiator.

If India successfully supports its steel sector during this transition, the country may emerge stronger in the long term.

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