EU's Carbon Border Adjustment Mechanism (CBAM) to reshape India's trade
The European Union's Carbon Border Adjustment Mechanism (CBAM), effective from January 1, 2026, aims to prevent carbon leakage by imposing a carbon-linked charge on imports based on embedded emissions. This policy will significantly impact carbon-intensive Indian exports like steel, cement, and aluminium, making them costlier. CBAM also poses indirect price pressures on India's fertilizer imports, as key exporters to the EU are also major suppliers to India, potentially increasing global fertilizer prices and jeopardizing India's agricultural sector. India needs a two-pronged strategy of domestic reforms and effective international negotiations.
Key Points
- CBAM is an EU climate policy tool designed to prevent carbon leakage by taxing carbon-intensive imports.
- It will directly impact India's steel, cement, and aluminium exports to the EU and indirectly affect fertilizer prices.
- India needs to invest in clean energy and implement stricter carbon policies domestically.
- International negotiations are crucial for India to secure equitable treatment and transitional support.
Exam Facts
- CBAM definitive phase starts: January 1, 2026.
- Affected sectors: steel, cement, aluminium, fertilizers, electricity, hydrogen.
- Key fertilizer exporters to EU (and India): Egypt, Russia, Morocco, China.
- Author: Poornima Varma, Faculty member at IIMA.
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