India’s steel exports to EU to come under pressure on CBAM framework: Icra

New Delhi: India's steel exports to the European Union (EU) will likely come under pressure during calendar year 2026 to 2030 as the region implements the Carbon Border Adjustment Mechanism (CBAM) framework, according to rating agency Icra Ltd.

“CBAM to impact between 15% and 40% of India’s annual steel exports which are made to Europe; failure to reduce the carbon footprint may result in lower profits in EU markets, and a possible loss of market share in Europe for Indian mills,” Icra said in a report.

The European Commission has proposed the world’s first "carbon border tax" on imports of carbon-intensive goods, including steel, cement, fertilisers and aluminium, as part of a programme to meet its climate target.

The EU’s carbon tax is based on its domestic emission standards and a price to be paid for excess emissions. The scheme gets into a global transition phase in October and becomes fully effective in January 2026.

The measure is designed to protect European industries from competitors abroad not subject to the same carbon levies.

Many fear this list may expand in the future, impacting developing countries such as India. Once the permanent system kicks in, importers into EU will need to report the quantity of annual imports and their embedded greenhouse gases. They will then surrender the corresponding number of CBAM certificates available at a price. The price is computed as the weekly average auction price of the EU’s emission allowances—the right to emit a specific amount under its Emission Trading System expressed as euros per tonne of carbon.

EU is the second largest steel-consuming block globally, as per Icra.

"...CBAM compliance requirements could pull down the profits of Indian steel exports to the EU by $60-165/MT between CY 2026 and CY2034…" it said.

According to Icra, India exports up to 3-5 million tonne of finished steel to Europe every year. India produced 122 million tonne finished steel in FY23.

“Leading domestic primary steel producers have an average CO2 emission intensity of around 2.6 MT CO2/ MT crude steel. This is 12% higher than the global average CO2 intensity for the BF-BoF route. Europe has historically remained an important overseas destination for Indian steel mills, accounting for between 15-40% of our annual steel exports," said Jayanta Roy, senior vice-president & group head, Corporate Sector Ratings at Icra. 

“However, the carbon footprint of Indian mills is significantly higher than competing suppliers to the EU…. Therefore, unless the carbon footprint of Indian steel mills is brought at par with global standards, it can potentially lead to lower profits and a loss of market share in Europe for domestic producers.”

To mitigate the potential impact on profits and market share, Indian steel mills must prioritize reducing their carbon footprint through the adoption of various technological interventions, Icra added. 

These interventions include increasing the share of renewables and scrap in the steelmaking process, utilizing superior-grade raw materials or alternative fuels such as hydrogen and coal bed methane, investing in logistics infrastructure, and establishing carbon capture utilization and storage units. However, such a transition toward low-carbon technologies may require significant capital investments by steel manufacturers.