From Jan. 1, 2026, the European Union's Carbon Border Adjustment Mechanism entered its definitive phase, transforming carbon intensity from a reporting requirement into a direct cost of trade. Under CBAM, EU importers must purchase certificates corresponding to the carbon embedded in imported goods, effectively extending the EU's carbon pricing regime beyond its borders.
For manufacturers supplying Europe, carbon efficiency is no longer a sustainability consideration alone. It is becoming a commercial variable that directly influences pricing and competitiveness. The financial obligation to purchase and surrender CBAM certificates will begin from February 2027, covering emissions embedded in goods imported during 2026.
The scope of CBAM has increasingly extended beyond primary metals to include downstream products with high steel and aluminum content, notably affecting galvanized components used in large-scale infrastructure.
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In its initial phase, the mechanism applies to cement, electricity, hydrogen, fertilisers, aluminium, iron and steel, along with nearly 180 downstream products that contain significant steel or aluminium content, including automotive components, machinery parts and consumer durables. Over time, the scope is likely to widen.
The European Commission has signalled that CBAM could expand by 2030 to cover all sectors under the EU Emissions Trading System, including chemicals, plastics, glass, ceramics, pulp and paper and refining products. This means manufacturers may face indirect exposure even if their final products are not immediately covered, simply because their supply chains rely on carbon-intensive inputs.
Although CBAM applies fully to India, one of the most strategic breakthroughs for India in the FTA is the Forward-Looking MFN Assurance. While the EU did not grant India an immediate exemption from CBAM, it has formally committed that any flexibility or concession granted to any third country in the future will automatically be extended to India.
The India-EU trade agreement brings greater tariff stability and market certainty, but it does not dilute the carbon-pricing architecture of European trade. In this new phase, competitiveness will be shaped less by tariffs and more by carbon intensity. Manufacturers that integrate low-carbon metals and materials into their supply chains are not merely reducing compliance risk, they are strengthening their export positioning in a carbon-priced market.
According to think-tank analysis, goods currently covered under the mechanism accounted for nearly 10% of India's total exports to the European Union in 2022-23 and represented about 0.2% of India's GDP. The same analysis estimates that at a carbon price of €100 per tonne of CO2 equivalent, CBAM could impose an average additional cost burden of around 25% on affected exports, a cost that Indian exporters may need to absorb to remain competitive in the EU market.
India exports several CBAM-covered materials to Europe, including aluminium, iron and steel and fertiliser-linked products, exposing manufacturers to direct carbon costs or pricing pressure once the mechanism becomes fully operational. With the EU signalling future inclusion of chemicals and plastics, India's broader manufacturing and specialty chemicals sectors are likely to face rising exposure over time.
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Trade studies indicate that India exported around $8.2 billion worth of iron, steel and aluminium products to the EU, with roughly 27% of India's global exports in these categories destined for European markets. In steel alone, nearly 40% of India's exports are concentrated in four EU countries.
This exposure is already translating into commercial pressure. According to reports, Indian metal exporters may be forced to cut export prices by 15-22% to allow EU importers to absorb carbon costs under CBAM. The global automobile sector is witnessing a strategic pivot as manufacturers grapple with the carbon intensity of their supply chains. In India, for instance, automobile exports rose by 24% in 2025, reaching over 6.3 million units, with passenger vehicles and utility vehicles leading the surge.
Sectors such as steel and aluminium, which are both energy-intensive and central to India's export basket, are particularly vulnerable. Smaller exporters and MSMEs also face added challenges due to the cost and complexity of emissions measurement, reporting and verification, which could further erode margins and competitiveness.
Against this backdrop, the carbon profile of materials becomes a decisive factor. European buyers, under regulatory pressure, are increasingly incorporating Scope-3 emissions into procurement decisions. Manufacturers using high-emission metals, minerals and chemical inputs risk higher landed costs and reduced competitiveness, even before CBAM formally expands to cover additional sectors.
This is where low-carbon materials and intermediates assume strategic importance. Reducing emissions at the input level lowers the embedded carbon footprint of finished manufactured products, limiting future CBAM liabilities while preserving market access. Across manufacturing ecosystems, early examples of this transition are already visible. Low-carbon zinc products such as EcoZen, produced by Hindustan Zinc, demonstrate how emissions reduction at the material level can cascade across sectors.
Zinc is a foundational input in galvanised steel, automotive components, construction materials, renewable energy infrastructure, consumer durables, electronics, speciality chemicals, batteries and a range of engineered products. Lowering the carbon intensity of zinc therefore improves the emissions profile of multiple downstream manufacturing segments without requiring fundamental redesign of end products.
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Alongside zinc, low-carbon aluminium produced using renewable power by Vedanta Aluminium. Vedanta Aluminium is being positioned for automotive, electrical, packaging and infrastructure applications. Designed for industries like automotive, construction, electricals, packaging, and renewable energy, Vedanta's low-carbon product Restora enables greener value chains and helps transition to responsible manufacturing.
Low-emission steelmaking initiatives at Tata Steel, including the transition to scrap-based Electric Arc Furnace facilities and the introduction of hydrogen and gas-based direct reduced iron technologies, are aimed at significantly reducing direct CO2 emissions and advancing the company's broader decarbonisation strategy.
Together, these materials illustrate how upstream decarbonisation can meaningfully reduce carbon exposure across manufacturing value chains.
Another major player in India's steel export landscape, JSW Steel, is also preparing for this shift. The company is laying the groundwork for low-carbon production to meet EU requirements and has announced plans for dedicated green steel capacity at Salav, Maharashtra, focused on producing low-emission products aligned to meet emerging export requirements, including the EU's CBAM framework.
Beyond metals, manufacturers are also exploring renewable-energy-based chemical intermediates, bio-based inputs, recycled materials, low-carbon coatings and process efficiency technologies. These initiatives are no longer niche sustainability pilots. They are increasingly central to how manufacturing supply chains are being restructured for a carbon-priced trade environment.
As CBAM moves into its operational phase, the message for manufacturers is clear. Carbon efficiency is becoming a determinant of market access. Those that treat low-carbon inputs as strategic assets rather than compliance costs will be better positioned to compete in an increasingly carbon-priced global economy.
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About the author: Prof. Satvasheel Powar is an Associate Professor at IIT Mandi. He specialises in energy systems, industrial decarbonisation and renewable energy integration, with a strong focus on the carbon intensity of manufacturing and power systems. His research examines techno-economic pathways to reduce embedded emissions in energy-intensive industries, making his work highly relevant to carbon pricing regimes such as the EU's CBAM and their impact on global supply chains.
Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
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