India’s exports face reset as EU links trade to carbon metrics: EY

Global trade is entering a carbon-priced era, where climate policy and market access are increasingly interconnected. The EU’s Carbon Border Adjustment Mechanism (CBAM) exemplifies this shift by placing a measurable carbon cost on emissions-intensive imports and linking competitiveness to verified emissions performance rather than just production cost or scale, according to Ernst & Young (EY). For India, where industrial systems remain largely dependent on coal and energy-intensive processes, this marks a fundamental shift in how exports are priced, verified, and negotiated.

CBAM’s scope directly intersects with India’s trade profile. Steel, aluminium, cement and fertilisers make up most CBAM-covered exports and now face higher landed costs in the EU, closer scrutiny of plant-level data and formal verification at the installation level, said Saunak Saha partner, Climate Change and Sustainability Services at EY India in an article titled ‘How Indian industries are adapting to CBAM and carbon pricing’.

Global trade is entering a carbon-priced era as the EU’s CBAM links market access to verified emissions, according to EY.
For India, this raises export costs in key sectors like steel and aluminium while pushing decarbonisation efforts.
Firms are shifting strategies and markets, while India’s Carbon Credit Trading Scheme aims to internalise costs domestically.

The policy timeline raises the stakes. After a transitional reporting period that began in October 2023, the definitive phase from January 1, 2026, requires importers to purchase CBAM certificates aligned with European Union—Emissions Trading system linked carbon prices. The first annual declaration for 2026 imports—along with certificate surrender—is due on September 30, 2027. For Indian producers, this formalises carbon as an explicit line item in export economics, with downstream product coverage expected to broaden over time.

Importantly, CBAM is also reshaping revenue strategy—not just compliance cost. Exporters that diversify away from concentrated EU exposure toward select Africa, West Asia and Latin America markets can defend or even enhance unit realisations, particularly when paired with credible low-carbon attributes.

The Carbon Credit Trading Scheme (CCTS) anchors a national carbon price in the very sectors that CBAM targets, allowing carbon costs to be internalised at home rather than paid at the EU border. That keeps revenues within India’s fiscal system and enables strategic recycling toward Indian industrial decarbonisation, clean-technology deployment and household welfare protection.

Just as importantly, a credible, rules-based CCTS—underpinned by strong MRV—enhances India’s standing in climate-trade forums and supports arguments for recognising an ‘effectively paid’ domestic carbon price. In practical terms, this reframes CBAM from a unilateral liability into a managed, development-aligned transition tool.

Treat CBAM as a structural signal, not a temporary hurdle. Build verifiable emissions baselines, prioritise technology shifts that cut intensity fastest per rupee invested and craft go-to-market strategies that monetise low-carbon attributes across multiple destinations. With disciplined MRV, targeted capex and a credible domestic carbon market, Indian producers can protect market access, lift realisations and compete in a world where carbon—and proof of reduction — has become part of the price, added the article.

Fibre2Fashion News Desk (SG)