What is EU's CBAM?

Established under EU Regulation 2023/956, CBAM solves the carbon leakage problem. Under the EU Emissions Trading System (EU ETS), domestic European factories pay a heavy price per tonne of carbon emitted. Without CBAM, EU buyers would simply import cheaper, high-emission products from countries lacking carbon pricing. CBAM levels the market by charging importers the exact carbon cost that a domestic EU manufacturer pays.

• Scope: Puts a carbon price on embedded emissions in imported goods equivalent to the EU ETS auction clearing price.
• Target: High-emission, trade-exposed industrial products entering the European Single Market.
• Core Rule: Lower embedded emissions mean lower tariff liability; higher embedded emissions mean severe border penalties.

CBAM coverage is determined strictly by CN (Combined Nomenclature) customs codes across six heavy industrial sectors:

• Currently Covered (Definitive Regime): Iron and Steel, Aluminium, Cement, Fertilisers, Hydrogen, and Electricity.
• Roadmap Expansion (By 2028): European Commission studies are actively evaluating expanding CBAM to organic chemicals, polymers, textiles, machinery, and automotive parts.

Under the CBAM Omnibus Simplification Package (Regulation (EU) 2025/2083), several critical operational updates were codified:

• 50-Tonne De Minimis Exemption: Importers bringing in 50 tonnes or less of cumulative net mass per calendar year (across cement, iron/steel, aluminium, fertilisers) are fully exempt from CBAM obligations. (Electricity and hydrogen excluded).
• Default Value Penalties: If an exporter cannot supply verified actual emissions data from their installation, the EU applies default values with escalating punitive markups: 10% surcharge in 2026, 20% in 2027, and 30% from 2028 onward.
• Shortfall Penalties: Importers failing to surrender sufficient certificates face an automated penalty of €100 per tonne of CO₂e shortfall, plus mandatory back-payment.

India is among the world's most exposed economies to CBAM due to extensive iron, steel, and aluminium exports to Europe. Indian suppliers face two divergent futures:

• Risk of Inaction: Without verified emissions data, EU importers are forced to apply punitive default factors (+10% to +30%), making Indian products uncompetitive against lower-carbon competitors.
• Competitive Advantage: Supplying accredited, installation-level Scope 1 and Scope 2 GHG data enables European customers to minimize certificate costs, locking in long-term supply agreements.
• Domestic Carbon Credit Scheme (CCTS): Carbon taxes or allowances paid in India under national frameworks can be claimed as deductions against EU CBAM liabilities, preventing double taxation.