The EU's Carbon Border Adjustment Mechanism (CBAM) started its financial phase in January 2026, requiring importers of steel, aluminium, cement, fertilisers, electricity, and hydrogen to buy certificates matching the embedded carbon emissions of their goods. For Indian exporters, especially MSMEs, the main challenge is not the carbon cost itself but the compliance burden. Setting up carbon accounting, third-party verification, and digital reporting systems can cost each small firm Rs 15-20 lakh. India is the world's second-largest producer of crude steel and primary aluminium, so CBAM hits hard. A recent ICRIER working paper estimates Indian iron and steel exports to the EU could drop by nearly 24%. The Indian government is reportedly preparing a scheme to cover 90% of CBAM compliance costs for MSMEs. This move aims to help small exporters keep access to European markets while they adopt cleaner production methods. Beyond the immediate cost relief, CBAM creates a long-term push for India to strengthen domestic carbon measurement infrastructure and shift toward low-carbon manufacturing. The UK is also planning its own CBAM from 2027, adding more pressure. Exporters who invest now in emissions tracking and cleaner processes will be better positioned as global carbon border policies expand.
