Introduction
Indian manufacturers and exporters including certain iron and steel, aluminium, cement, fertiliser and hydrogen products etc are getting affected by the introduction of EU CABM rule. Climate is changing the way products are made and sold around the world. Earlier, companies mainly focused on product quality, price and delivery. Today, carbon emissions associated with manufacturing are also becoming an important part of international trade.The European Union introduced the Carbon Border Adjustment Mechanism to place a carbon-related cost on certain carbon-intensive goods imported into the EU.This guide explains what EU CBAM is, why it was introduced, how it works, which industries may be affected, how it may impact India and how Indian manufacturers can prepare for changing carbon-related trade requirements.
Table of Contents
- What is EU CBAM? Facts & Objectives
- What is Carbon Leakage and Why was EU CBAM Initiated?
- Timeline of History and Implementation of EU CBAM
- EU CBAM and How It Works: Embedded, Direct and Indirect Emissions Explained
- EU CBAM Covered Sectors and Manufacturers Affected by EU CBAM
- Countries Adopted or Planning for CBAM
- Does India Have CBAM? Know About India’s Carbon Credits Trading Mechanism
- Why hasn’t India adopted Carbon Border Adjustment Mechanism?
- Effect of EU CBAM on Indian Industries and Exporters
- Pros and Cons of EU CBAM
- Case Study & Process of EU CBAM in Context of Indian Manufacturers
- EU CBAM Readiness Checklist
- EU CBAM, Industrial Certification and Role of PZVAR
- FAQs and Conclusion
What is EU CBAM? Facts & Objectives
The EU CBAM refers to the European Union Carbon Border Adjustment Mechanism. This is a climate and trade mechanism implemented by the European Union in order to impose a justifiable carbon cost on specific carbon-intensive goods imported to the EU.
According to the European Commission’s official EU Carbon Border Adjustment Mechanism guidance it’s purpose is to prevent carbon leakage and promote clean production processes. Carbon leakage might arise where industries shift production to areas that have reduced carbon costs or where high-carbon goods imported from other regions replace goods produced in the European Union.
For instance, a steel producer in the European Union must pay carbon-related costs as per the EU Emissions Trading System (EU ETS). Steel producers who operate in areas outside the EU might not be paying carbon costs. EU CBAM seeks to level the carbon cost among the selected imported products and products produced within the EU.
The European Union CBAM was adopted to meet some of the climate goals of the European Union. These include the European Green Deal and the ambition of the EU to become climate-neutral by 2050 and the aim to cut down net greenhouse gas emissions by at least 55% by 2030.
EU CBAM Quick Facts
| Question | Simple answer |
| What is CBAM? | Carbon Border Adjustment Mechanism |
| Who established EU CBAM? | European Union |
| Why was it established? | To reduce carbon leakage and foster greener production |
| What is the key EU CBAM regulation? | Regulation (EU) 2023/956, as amended |
| Since when is the transitional phase operative? | From 1 October 2023 |
| Since when is the definitive phase operative? | From 1 January 2026 |
| Which sectors does it cover? | Specific goods in the sectors of iron and steel, aluminium, cement, fertilisers, electricity, and hydrogen |
| Does EU CBAM apply to all imported products? | No |
| Has India established its own CBAM? | No |
| Are Indian exporters affected by it? | Yes, while exporting certain CBAM-goods to the EU |
What Is Carbon Leakage? Why Was EU CBAM Adopted?
Carbon leakage occurs in case companies shift their carbon-intensive activities from one country to another where carbon costs or requirements for climate policy are lower. Another form of carbon leakage is when products produced in the EU are substituted by imports that produce more carbon emissions.
EU CBAM was adopted to minimize such risks. The mechanism is designed to align the carbon cost of imported goods with the carbon cost of manufacturers located within the territory of the EU. CBAM is also aimed at promoting cleaner production.
For instance, the relocation of a steel producer’s factories from the territory of the EU for avoiding carbon costs will not necessarily reduce carbon emissions globally. Carbon emissions will be transferred from one country to another. EU CBAM is aimed at preventing this scenario.
Legal reference: Regulation (EU) 2023/956 establishing the Carbon Border Adjustment Mechanism
Timeline of History and Implementation of EU CBAM
EU CBAM has been implemented gradually as part of the measures introduced by the European Union to curb carbon emissions and avoid carbon leakage.
| Year | Key milestone |
| 2005 | Introduction of the EU Emissions Trading System (EU ETS) that included carbon pricing for relevant sectors. |
| 2019 | Launch of the European Green Deal aimed at making the EU climate-neutral by 2050 |
| 2021 | Proposal by the European Commission to implement the EU CBAM in the Fit for 55 package. |
| 2023 | The CBAM Regulation is adopted by the EU. The transitional reporting period commenced on 1 October 2023. |
| 2023-2025 | The embedded emissions of relevant goods were reported by EU importers. The EU CBAM payment of certificates was not obligatory during this phase. |
| 2026 | The definitive EU CBAM came into effect on 1 January 2026. |
EU CBAM was introduced in stages to give importers and manufacturers time to understand the requirements, collect emissions data and prepare for the definitive system. The transitional period ran from 1 October 2023 to 31 December 2025, followed by the definitive EU CBAM regime from 1 January 2026. For detailed information, refer to the European Commission’s official CBAM Registry and reporting guidance.
EU CBAM and How It Works: Embedded, Direct and Indirect Emissions Explained
EU CBAM focuses on the carbon emissions associated with producing certain products imported into the European Union. Such emissions are known as embedded carbon emissions.
The process is pretty simple. A foreign manufacturer produces a covered product and collects data on production, fuel use and electricity use. Then, the embedded emissions are calculated and reported to the EU importer. The importer uses this data to comply with relevant EU CBAM provisions.
The embedded emissions can be broken down into:
Direct emissions: Carbon emissions generated during manufacturing, for example, emissions from furnaces, fuel consumption, and industrial processes.
Indirect emissions: Emissions associated with the use of electricity in production where such emissions are considered under EU CBAM rules.
For instance, an Indian steel manufacturer will have to provide data on fuel and electricity used for producing covered steel products imported to the EU. This way, the EU importer can identify the carbon emissions associated with the product.
It should be noted that calculation and reporting rules can differ depending on the product and current EU CBAM legislation.
EU CBAM Covered Sectors and Manufacturers Affected by
EU CBAM is applicable to certain carbon-intensive products that are imported into the European Union. The list of the major sectors that are currently covered by EU CBAM is provided below:
- Iron & Steel
- Aluminum
- Cement
- Fertilizers
- Electricity
- Hydrogen
Manufacturers/exporters of these products will have to submit information regarding their production process, energy consumption and carbon emission rates to their EU clients.
For instance, Indian manufacturers of steel, aluminum, cement, fertilizer and hydrogen who export covered products to the EU are likely to be affected by EU CBAM. But every single product in these sectors is not necessarily covered by EU CBAM. The customs classification of the product, relevant CN code, origin, import quantity and the existing EU CBAM requirements should be determined first.
Countries Adopted or Planning for CBAM
CBAM by the EU has been developed within one common framework in its 27 member states. The UK has planned to develop CBAM within itself starting 2027. Other countries like Australia, Canada and the US have explored such an idea but none of them has developed CBAM as yet.
Does India Have CBAM? Know About India’s Carbon Credits Trading Mechanism
India has not implemented its own Carbon Border Adjustment Mechanism (CBAM) yet.
EU CBAM is an EU policy framework. But Indian producers and exporters can still be impacted when they export relevant products to the European Union.
India is creating its own carbon market using the Carbon Credit Trading Scheme (CCTS), which seeks to facilitate greenhouse gas emission reduction, removal, and avoidance in India by means of carbon credits.
India’s Carbon Credit Trading Scheme (CCTS) and the EU CBAM are not similar. The former is a domestic carbon market scheme, while the latter involves embedded carbon emissions of certain goods being imported into the European Union.
The major differences are listed below:
| Area | EU CBAM | India’s Carbon Credit Trading Scheme |
| Purpose | Imposes carbon obligations on selected goods being imported into the EU | Serves emissions reduction and carbon credits trading in India |
| System | Carbon-border adjustment system | Domestic carbon market system |
| Focus | Embedded carbon emissions from covered imported products | Reduction of greenhouse gases and carbon credit systems |
| Participants | EU importers, authorized CBAM declarants, and foreign manufacturers furnishing emissions data | Indian eligible industries and participants in the carbon market |
| Primary area | EU imports | Indian carbon marke |
| Are the two systems similar? | No | No |
The Carbon Credit Trading Scheme in India may assist firms in improving their measurement of emissions, carbon data management, and monitoring and reporting of emissions and industrial decarbonization.
Nevertheless, Indian firms that export goods covered under CBAM to the European Union should still be aware of the EU CBAM rules and regulations. Adopting the Carbon Credit Trading Scheme in India does not necessarily mean that the firm is in compliance with EU CBAM.
Why hasn’t India adopted Carbon Border Adjustment Mechanism?
India has not yet implemented its own CBAM. India is concentrating on building up its own carbon market and development of renewable energy at this point of time. It would be quite a challenge for India to implement such a carbon border system as it would have implications on the industry as well as on product pricing.
| Primary Factor | Simplified Explanation |
| Development of domestic carbon market | India is developing its carbon market via carbon credit programs, emission goals, monitoring, reporting and verification processes. |
| Economic and developmental priorities | India is a developing nation with significant priorities including job creation, infrastructure, energy, production and export-oriented industries. |
| Fossil-fuel based energy dependence | Many Indian industries rely on coal and other fossil fuel-based energy sources; the imposition of a carbon price may prove challenging for energy-intensive industries. |
| Difficult implementation process | The establishment of a CBAM will involve customs integration, product classification, emission calculation, carbon pricing, digital reporting and verification. |
| Climate equity issues | India believes in the concept that nations vary in terms of historical emissions, developmental requirements, financial capabilities and technological advancements. |
| International trade issues | The introduction of a CBAM in India can impact import prices, domestic producers and international trade connections. |
India may thus remain focused on domestic decarbonization, renewable energy, carbon market development and industrial growth prior to implementing its own CBAM.
Reference: Government of India – Carbon Credit Trading Scheme and Indian Carbon Market framework.
Effect of EU CBAM on Indian Industries and Exporters
EU CBAM may affect Indian companies that export certain steel, aluminium, cement, fertiliser and hydrogen products to the European Union. These industries can create high carbon emissions because they use large amounts of fuel, electricity and raw materials during production.
Steel manufacturers may need to provide information about their production process, fuel use, electricity use and embedded carbon emissions. Companies that use cleaner energy, recycled steel and energy-efficient technology may have better opportunities in low-carbon markets.
Aluminium manufacturers use a large amount of electricity. The source of electricity can affect the carbon emissions of the final product. Using renewable energy and energy-efficient equipment may help reduce emissions.
Cement manufacturers create emissions from fuel use, electricity use and clinker production. Cleaner fuels, renewable energy and energy-efficient production methods may help lower emissions.
Fertiliser manufacturers may create emissions during ammonia production, chemical processing and energy use. Better emissions data can help companies understand and manage their carbon impact.
Hydrogen producers may have different emission levels depending on how hydrogen is produced and which energy source is used. Renewable hydrogen may create new opportunities for India in the low-carbon economy.
Indian exporters may face challenges such as higher compliance costs, complex emissions calculations and the need for better production data. However, companies that use cleaner energy, improve efficiency and reduce carbon emissions may become more competitive in European and global markets.
Pros and Cons of EU CBAM
EU CBAM is advantageous, but there are challenges to it. It could incentivize firms to cut down carbon emissions and adopt greener methods of manufacturing. The scheme, however, may lead to increased cost burden and additional compliance reporting on the part of the manufacturers and exporter
| Pros | Cons |
| Incentivizes greener manufacturing processes | Cost of compliance could increase |
| Helps mitigate carbon leakage | Carbon calculation is complicated |
| Fulfills global climate objectives | Difficulty in collection of emissions data |
| Promotes use of renewable energy | Verification will add to costs |
| Boosts demand for low carbon goods | Lesser help for small firms |
| Improves energy efficiency | Necessity of new technology |
| Incentivizes greener industrial innovations | Varying carbon pricing |
| Could be good for low carbon manufacturers | Tougher position for developing-country exporters |
The implementation of EU CBAM would be both a challenge and an opportunity for Indian manufacturers. The firms would have to collect better emission data, develop cleaner technologies and improve energy efficiencies. However, those manufacturers that succeed in cutting down emissions and producing low carbon products would enjoy a competitive edge in Europe and other parts of the world.
Case Study & Process of EU CBAM in Context of Indian Manufacturers
Example 1: Indian Steel Exporter
An Indian steel company exports covered steel plates to Germany.The German importer requests embedded-emissions information.
The Indian manufacturer collects:
- Production quantity;
- Coal consumption;
- Natural-gas consumption;
- Electricity consumption;
- Production-process information.
The emissions information is calculated using the applicable method.The required information is provided to the importer.The importer uses the information to support its CBAM obligations.
Example 2: Aluminium Manufacturer
An Indian aluminium manufacturer exports covered aluminium products to France.The company uses a large amount of electricity.
The company studies:
- Electricity consumption;
- Electricity source;
- Production volume;
- Product-level energy use.
The company invests in renewable electricity.Over time, its product carbon intensity may decrease.
Example 3: Small Supplier
A small Indian company does not export directly to Europe. It supplies steel components to a large Indian exporter. The exporter asks for better material and production information. The small company is indirectly affected through the supply chain.
Processing Guide
Indian manufacturers should not wait until a customer asks for urgent information.
Preparation can begin early.
Step 1: Identify EU Exports
List all products exported to the European Union.
Step 2: Check Product Codes
Verify the applicable customs and CN codes.
Step 3: Check CBAM Coverage
Compare the codes with the current CBAM scope.
Step 4: Map the Production Process
Identify:
- Production stages;
- Machines;
- Furnaces;
- Fuel sources;
- Electricity sources;
- Raw materials.
Step 5: Collect Energy Information
Collect:
- Electricity bills;
- Meter readings;
- Fuel-purchase records;
- Equipment data.
Step 6: Collect Production Information
Record:
- Product quantity;
- Production volume;
- Material use;
- Production route.
Step 7: Identify Emissions Sources
Identify:
- Direct emissions;
- Applicable indirect emissions;
- Process emissions;
- Relevant precursor emissions.
Step 8: Improve Data Quality
Make sure records are:
- Complete;
- Accurate;
- Traceable;
- Consistent;
- Supported by evidence.
Step 9: Communicate With EU Customers
Ask customers:
- What information is required?
- What format is required?
- What reporting period applies?
- What verification is required?
Step 10: Plan Emissions Reduction
Look for opportunities such as:
- Energy efficiency;
- Renewable energy;
- Cleaner fuels;
- Better technology;
- Waste reduction.
EU CBAM Readiness Checklist
Products checklist:
☐ List the products exported to the EU
☐ Verify the customs classification
☐ Check the scope of the CBAM
☐ Establish the country of origin
☐ Exemptions check
Manufacturing Checklist:
☐ Process mapping
☐ Manufacturing installations identification
☐ Production volumes identification
☐ Raw materials identification
☐ Precursor material identification
Energy checklist:
☐ Electricity data collection
☐ Fuel data collection
☐ Sources of electricity
☐ Renewable energy usage check
☐ Energy meter accuracy check
Emissions checklist:
☐ Direct emissions identification
☐ Indirect emissions identification
☐ Process emissions identification
☐ Calculation methodology
☐ Records retention
Communication checklist:
☐ EU importer identification
☐ Customer requirements check
☐ Data formats agreement
☐ Communication records retention
☐ Monitoring of EU news
Improvement checklist:
☐ Energy review
☐ Energy savings identification
☐ Renewable energy evaluation
☐ Emissions reduction goals setting
☐ Product carbon intensity monitoring
EU CBAM, Industrial Certification and Role of PZVAR
EU CBAM and industrial certification are different. EU CBAM focuses on the carbon emissions created while making certain products imported into the European Union. Industrial certification checks whether a company, process or person meets the requirements of a specific standard.
PZVAR is a certification body that provides certification services based on applicable European and international standards, including:
- EN 15085 – welding of railway vehicles and components;
- EN ISO 3834 – quality requirements for fusion welding of metallic materials;
- EN 1090 – execution of steel and aluminium structures;
- ISO 9712 – qualification and certification of non-destructive testing personnel.
Some manufacturers may need to meet both EU CBAM requirements and industrial certification requirements. For example, an Indian steel manufacturer may need to provide embedded-emissions information for EU CBAM and may also require EN 1090 or EN ISO 3834 certification based on its products and manufacturing activities.
PZVAR certifications support manufacturing quality, technical conformity and customer requirements. However, they do not replace EU CBAM requirements. Similarly, EU CBAM compliance does not replace the need for applicable industrial certification.
Manufacturers can explore PZVAR’s certification services to identify the standards relevant to their products, processes and industry requirements.
FAQs of EU CBAM
1. What is the EU Carbon Border Adjustment Mechanism for Indian exporters?
The EU Carbon Border Adjustment Mechanism is a carbon-border system introduced by the European Union. It applies to selected carbon-intensive goods imported into the EU. Indian manufacturers may be affected when exporting covered products to European customers because they may need to provide relevant production and embedded-emissions information.
2. Has India implemented its own Carbon Border Adjustment Mechanism?
No. India has not implemented its own CBAM. India is developing a domestic carbon-market framework through the Carbon Credit Trading Scheme. However, India’s carbon market is different from EU CBAM.
3. Which Indian industries are affected by EU CBAM in 2026?
Potentially affected sectors include iron and steel, aluminium, cement, fertilisers and hydrogen. Electricity is also included in the EU CBAM scope. Actual product coverage depends on the applicable customs classification and current EU rules.
4. How does EU CBAM affect Indian steel exporters?
Indian steel exporters may need to provide information about production processes, fuel consumption, electricity consumption, production volume and embedded emissions to support their EU customers’ CBAM obligations.
5. Does EU CBAM apply to every product exported from India to Europe?
No. EU CBAM does not apply to every product. Applicability depends on the product classification, customs code, origin, quantity, applicable exemptions and current regulations.
6. Who is responsible for purchasing EU CBAM certificates?
The formal obligations generally apply to the authorised CBAM declarant or applicable EU importer. However, overseas manufacturers may need to provide accurate emissions information.
7. What are embedded emissions under EU CBAM?
Embedded emissions are greenhouse gas emissions associated with manufacturing a product. They may include direct production emissions and applicable indirect emissions related to electricity consumption.
8. How can Indian manufacturers prepare for EU CBAM requirements?
Manufacturers can identify covered products, verify customs codes, collect production and energy data, calculate embedded emissions using applicable methods, maintain supporting records and communicate with EU customers.
9. Is India’s Carbon Credit Trading Scheme the same as EU CBAM?
No. India’s Carbon Credit Trading Scheme is a domestic carbon-market framework. EU CBAM is a carbon-border mechanism for selected goods imported into the European Union.
10. Can industrial certification replace EU CBAM compliance?
No. Industrial certification and EU CBAM have different purposes. Certifications such as EN ISO 3834, EN 15085, EN 1090 and ISO 9712 do not replace applicable EU CBAM requirements.
Conclusion
CBAM of EU will affect the global business environment with respect to carbon emissions. Though there has been no CBAM introduced by India yet, the Indian manufacturers or exporters might get influenced when they ship their goods under CBAM covered products in the European Union.In order to fulfill the customer demand and stay ahead of competition in international markets, Indian firms may require preparing themselves by collecting adequate data related to carbon emissions and improving energy efficiency among others.EU CBAM is distinct from industrial certification in many ways as the former focuses on carbon emissions while the latter is about industrial certification service for various EN/ISO standards including EN 15085, EN ISO 3834, EN 1090 and ISO 9712 etc. EU CBAM and industrial certifications serve entirely different purposes. The former is an effort to control the carbon emissions while the latter provides manufacturing quality and technical conformity.