The European Union’s Carbon Border Adjustment Mechanism (CBAM) is projected to have only a limited impact on India’s export trade, according to a new report published by Belgium-based think tank Sandbag on Monday, October 20.
The report estimates that EU importers of Indian goods will initially face CBAM-related costs equivalent to just 2.6 percent of total EU-India trade, or around €826 million. However, the financial impact is expected to ease significantly as India launches its domestic Carbon Credit Trading Scheme (CCTS), which has already been recognized by the EU as an eligible carbon pricing mechanism.
If India’s carbon market reaches 25 percent of the EU’s internal carbon price, the CBAM burden could decline by 42 percent, falling to €480 million, or only 1.5 percent of bilateral trade, Sandbag noted.
“Where local carbon taxes or carbon market prices are recognized - such as India’s new Carbon Credit Trading Scheme - these can be deducted from CBAM costs, allowing those revenues to remain in India,” the report said.
India’s carbon market could offset CBAM costs
Under CBAM, which will be fully implemented in January 2026, EU importers must pay a carbon price equivalent to that paid by EU producers under the EU Emissions Trading System (ETS). The mechanism initially covers imports of iron and steel, aluminum, cement, fertilizers, electricity, and hydrogen, with plans to expand the scope in later phases.
India has long criticized CBAM as a “disguised trade barrier” that unfairly penalizes developing economies. However, Sandbag’s report suggests that India’s stance is evolving as the recognition of its domestic carbon market will help retain carbon revenues within India and reduce the fiscal pressure on exporters.
EU recognition of India’s CCTS eases trade concerns
With the EU’s acknowledgment of India’s Carbon Credit Trading Scheme, the revenues generated from carbon taxation in key industrial sectors will stay within the country, reducing trade disruptions and helping exporters adapt to the new climate policy framework.
Sandbag’s analysis is based on its CBAM Simulator, a public tool designed to model the impact of carbon border charges across different countries and industrial sectors.
