Indian iron and steel exporters face the highest CBAM levy

For Preliminary Examination: Current events of national and international Significance

For Mains Examination: GS III - Environment and Ecology

Context:

Indian exporters of iron and steel to EU may have to pay about €301 million (approximately ₹3,000 crore) in Carbon Border Adjustment Mechanism (CBAM) fees, the highest among all countries exporting similar products to the EU, an analysis by European non-profit think-tank Sandberg has found

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 Carbon Border Adjustment Mechanism (CBAM)

Greenhouse gas (GHG) emissions

Key takeaways

• The Carbon Border Adjustment Mechanism (CBAM) is a policy tool introduced by the European Union (EU) to address the issue of “carbon leakage” — a situation where industries shift production to countries with weaker climate regulations to avoid the costs of reducing greenhouse gas emissions.
• Essentially, CBAM ensures that imported goods into the EU face a carbon price equivalent to what EU producers pay under the EU’s Emissions Trading System (ETS).
• Under the EU’s climate policies, industries within the region are required to purchase carbon credits for every tonne of carbon dioxide they emit. This system creates a financial incentive to adopt cleaner technologies and reduce emissions.
• However, if foreign producers exporting to the EU are not subject to similar carbon pricing in their home countries, they gain a cost advantage. The CBAM aims to neutralize this imbalance by imposing a carbon tariff on such imports.
• The mechanism initially covers carbon-intensive sectors such as iron and steel, cement, aluminum, fertilizers, electricity, and hydrogen—areas that are both energy-intensive and highly traded globally. Importers in the EU will need to report the embedded emissions of their products and purchase corresponding CBAM certificates to cover these emissions. The price of these certificates will mirror the price of carbon within the EU’s ETS.
• For developing countries, including India, CBAM raises significant concerns. It could act as a trade barrier by making exports to the EU more expensive if domestic producers cannot demonstrate low carbon footprints. This may also pressure developing economies to adopt stricter climate measures and carbon accounting mechanisms to maintain export competitiveness.
• In essence, the CBAM represents a major step in linking global trade with climate policy. While it supports the EU’s goal of achieving net-zero emissions by 2050, it also introduces new dynamics in international trade, prompting debates on climate justice, fairness, and the responsibilities of developed versus developing nations in combating global warming

 Additional Information

• According to a recent analysis by the European think tank Sandberg, Indian exporters of iron and steel to the European Union (EU) may incur approximately €301 million (about ₹3,000 crore) in charges under the Carbon Border Adjustment Mechanism (CBAM)—the highest liability among all nations exporting similar products to the bloc.
• The CBAM functions as a carbon levy imposed on European importers who purchase goods from countries where production generates higher carbon emissions per tonne than comparable goods produced within the EU.
• Sandberg’s newly released online calculator estimates that Russia will face the second-highest CBAM costs at €240 million, followed by Ukraine (€198 million) and China (€194 million).
• The study further reveals that when India’s exports of