Indian exports face rising cost pressure as EU plans carbon tax expansion: GTRI

As the European Union is set to widen its carbon border tax regime, Indian exports could face significantly higher carbon-related costs as the regime widens its scope, according to a report by the Global Trade Research Initiative (GTRI).The report said the European Parliament’s environment committee has proposed extending CBAM to around 180 additional steel- and aluminium-based products from January 2028, alongside tighter compliance rules.These include stricter carbon accounting for scrap-based production, rejection of international carbon credits, possible inclusion of indirect emissions from electricity use, and stronger anti-circumvention and reporting norms.Together, these measures would turn CBAM “from a tax mainly on steel and aluminium raw materials into a much wider carbon tax covering manufactured industrial goods,” the GTRI report noted.CBAM is the EU’s border carbon tax that imposes a carbon price on imports based on embedded emissions, effectively acting as a climate-linked trade barrier on carbon-intensive goods.The proposed expansion would bring a wide range of products under its ambit, including fabricated metal goods, tubes, pipes, fasteners, structural components, machinery parts and aluminium-based engineering products, indicating a shift deeper into the manufacturing value chain.The report added that stricter treatment of scrap-based production—where emissions from recycled inputs are counted in final products — could remove the cost advantage currently enjoyed by many Indian producers.It also highlighted that exporters would not be allowed to use international carbon credits for compliance and may have to reduce emissions at source or operate under an EU-recognised carbon pricing system.Further, the EU is examining extending CBAM to indirect emissions from electricity use, which could increase costs for Indian manufacturers reliant on coal-based power.The report cautioned that Indian industry should no longer view CBAM as limited to steel and aluminium, noting that exporters of engineering goods, auto components and machinery may increasingly face carbon taxes in Europe from 2028.GTRI estimates that by 2030, most industrial products entering the EU could face some form of carbon tax exposure.The development comes as India and the EU move towards a free trade agreement, under which EU goods may enter India at lower tariffs while Indian exports could simultaneously face rising CBAM costs in Europe.The report also noted that several Indian agricultural exports could be affected under the EU’s deforestation regulations.Indian exporters, it said, will need to accelerate emissions accounting, supply-chain traceability and decarbonisation investments to remain competitive in the EU market.