Mastering CBAM: India's Strategic Path to Global Competitiveness

In the dynamic landscape of global trade, India stands at the crossroads of challenges and opportunities with the introduction of the Carbon Border Adjustment Mechanism (CBAM). As a key player in international trade, India's response to CBAM has implications for its economy and industries.

What is CBAM?

CBAM functions as a carbon tax on certain goods based on their embedded carbon emissions. It is designed to prevent carbon leakage, a situation in which industries relocate to regions with lax emissions regulations, undermining global climate efforts. The mechanism will apply to industries with high greenhouse gas emissions, such as steel, cement, aluminum and fertilizers.

Key Components of the CBAM

1. Carbon tax collection: Starting January 1, 2026, the EU will levy a carbon tax on certain goods entering its market. This tax is intended to reflect the carbon intensity of imported products.
2. Emissions tracking: CBAM requires companies to disclose the carbon content of their products. This includes detailed tracking and reporting of emissions throughout the supply chain.
3. Legal implications: Due to its innovative nature, CBAM is likely to face legal challenges at the World Trade Organization (WTO). This could lead to trade tensions on the global stage.

How CBAM Works

Carbon intensity assessment: The carbon content of imported products is assessed to determine the level of carbon emissions associated with their production.

Carbon tax calculation: A carbon tax is then calculated based on the determined carbon intensity of the goods. This tax is applied at the EU border when the products enter the market.

Impact on global trade: The CBAM aims to create a level playing field by ensuring that imported products meet the same environmental standards as those produced within the EU. It encourages global industry to adopt cleaner and more sustainable practices.

Challenges Faced by India

The implementation of the Carbon Border Adjustment Mechanism (CBAM) poses complex challenges for India, a key player in the global trade arena. As a nation with ambitious goals to become carbon neutral by 2070, India is facing a multifaceted impact on its economy and industries.

Impact on Energy-intensive Exports

India, known for exporting energy-intensive goods such as steel, aluminum, cement, and fertilizers, expects significant impacts from CBAM. These impacts include higher prices, reduced competitiveness, and a potential reduction in demand for Indian products in the important European Union (EU) market.

Challenges in the Metals Sector

The metals sector, a cornerstone of India's export portfolio, faces significant hurdles due to CBAM. In 2022, a significant 27% of India's exports of iron, steel and aluminum products were destined for the EU. The sector is bracing for increased costs and potential disruptions in trade dynamics.

Carbon Tax Impact

From January 1, 2026, the EU will begin levying a carbon tax on steel and aluminum shipments. Indian companies will have to bear a significant financial burden, equivalent to 20-35% of the tariff. This will place an additional burden on the industry, impacting its economic viability and competitiveness.

Legal Challenges and Trade Tensions

The innovative nature of CBAM is likely to lead to legal challenges, potentially escalating into trade tensions on a global scale. As the mechanism unfolds, navigating the legal intricacies will become imperative for Indian companies engaged in international trade.

Opportunities for India

While the Carbon Border Adjustment Mechanism (CBAM) presents challenges for India, it also opens up a spectrum of opportunities for the country's industries to thrive in the evolving global landscape.

Market Incentive for Low-emission Products

CBAM serves as a strong incentive for industries to venture into new markets with products that have lower greenhouse gas emissions. This provides a unique opportunity for Indian companies to position themselves in markets that prioritize sustainability strategically.

Encouraging Innovation

In response to CBAM, industries are being forced to innovate and develop more efficient, environmentally friendly processes and products. This drive for innovation not only aligns with the global shift toward sustainability but also positions Indian companies as leaders in green practices.

Cost Efficiency Through Emissions Reduction

Investing in emission reduction measures and cleaner energy sources not only aligns with CBAM compliance but also leads to improved cost efficiency. By adopting sustainable practices, companies can streamline operations, reduce material usage, and optimize energy consumption.

Global Competitiveness

Proactively reducing carbon emissions in response to CBAM gives companies a competitive advantage in international markets. Meeting global environmental standards and satisfying consumer preferences for sustainable products positions Indian companies as responsible contributors to the global economy.

Level Playing Field

CBAM ensures a level playing field among industries by holding all sectors accountable for their emissions. This prevents high emitters from accessing legacy markets and encourages industries to refrain from supplying emission-intensive products. It fosters a level playing field where environmental responsibility becomes an integral part of economic success.

Aligning Climate Action with Global Trade

As the global trade landscape changes with CBAM, companies need to increase their preparedness. Industries must analyze the impact of CBAM on their competitiveness, evaluate a transition to CBAM compliance, and strengthen sustainability goals.

Vulnerability Management Actions

1. Supply chain assessment: Assess the impact of CBAM on supply chains, identify vulnerabilities, and develop adaptation strategies.
2. Cleaner technologies: Invest in cleaner technologies to reduce carbon emissions and meet emerging environmental expectations.
3. Supply Chain Emissions Resilience: Establishing robust systems to manage emissions across supply chains, ensuring transparency and compliance.
4. Supply Chain Transformation: Shifting to low-carbon suppliers and processes to reduce the carbon intensity of products.
5. Market diversification: Exploring new markets and export strategies to remain competitive in the face of CBAM's impact on the EU market.

Your Gateway to Global Trade

For companies looking to navigate the complexities of CBAM and take advantage of its opportunities, Export Portal is your trusted partner. As the leading platform connecting businesses worldwide, Export Portal provides a seamless gateway to explore new markets, diversify supply chains, and ensure compliance with evolving global trade policies.

In this transformative era, Export Portal empowers Indian businesses to not only meet CBAM requirements but also thrive in an environment that values sustainability and innovation. Seize the opportunities, overcome the challenges, and embark on a journey of growth with Export Portal - your trusted partner in the ever-evolving landscape of global trade.