Carbon Border Adjustment Mechanism (CBAM): The Complete Guide for Indian Exporters

The EU's Carbon Border Adjustment Mechanism (CBAM) is the most significant trade-related carbon policy affecting Indian exporters. It places a carbon price on imports entering the EU from countries without equivalent carbon pricing — effectively levelling the playing field between EU manufacturers paying the EU Emissions Trading System (ETS) price and foreign competitors who face no domestic carbon cost. For Indian exporters in the affected sectors, CBAM creates a new cost, a new disclosure obligation, and a new competitive dynamic.

Which Indian Sectors Are Affected by CBAM?

CBAM currently covers six product categories: cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen. India is a significant exporter to the EU in several of these categories, particularly steel, aluminium, and fertilisers. The full CBAM charge came into force on 1 January 2026, following the transitional phase (2023–2025) during which importers were required to report embedded carbon content without financial charge. From 2026, EU importers must purchase CBAM certificates to cover the embedded carbon in their imports, and the cost is passed back through the supply chain to the exporting manufacturer.

How CBAM Charges Are Calculated

The CBAM charge is calculated based on the embedded carbon content of the imported goods, multiplied by the EU ETS carbon price. Embedded carbon means all direct and certain indirect emissions associated with the production of the goods. Indian exporters can reduce their CBAM exposure in two ways: by demonstrating actual embedded carbon content that is lower than the default values (which requires verified emission data), or by demonstrating that they have already paid a domestic carbon price for those emissions in India — which would apply if CCTS charges are recognised under the CBAM equivalency framework.

What Indian Exporters Need to Do Now

The first priority is calculating your actual embedded carbon content using verified production emission data. If your actual embedded carbon is lower than the CBAM default values, you can reduce your charge by submitting verified emission data to your EU importer. The second priority is building a verified carbon accounting system that satisfies EU verification requirements — this requires using accredited verifiers and methodologies acceptable under EU regulations. The third priority is monitoring the CCTS-CBAM equivalency negotiations — if India's domestic carbon price is recognised by the EU, Indian exporters paying CCTS costs may be able to offset part or all of their CBAM liability. Csquare helps Indian exporters calculate their CBAM exposure and build the emission verification infrastructure needed to manage it.