After tariffs, will the next big challenge to Indian exports be carbon compliance?
Indian small and medium industries are knocking at the government door for availability of renewable power to clusters exporting to Europe amidst carbon tax diktats
- Jun 11, 2026,
- Updated Jun 11, 2026 2:33 PM IST
The European Union plans to charge the Carbon Border Adjustment Mechanism (CBAM) tax on 180 new steel and aluminium-based products from January 2028, and it will impact the medium and small enterprises dealing in manufacturing and industrial goods in India.
The Global Trade Research Initiative (GTRI), a trade think tank, says Indian industry should no longer view CBAM as a regulation affecting only steel and aluminium. GTRI estimates that by 2030, most industrial products entering the EU could potentially face some form of carbon tax exposure.
“It is a very challenging situation. Everything must be calculated product by product,” says Anil Bhardwaj, Secretary General of the Federation of Indian Micro Small & Medium Enterprises (FISME).
Don't Miss: Fresh export challenge for MSMEs: EU plans to expand carbon tax to 180 more steel, aluminium products
Bhardwaj explains that SMEs are completely dependent on grid power, where coal-based thermal power constitutes 80-85% of the supply. This is not the case for large industry, because the latter can set up their own captive power plant and have green energy wheeled into their plant.
“We are talking to the government about how green power can be provided to clusters exporting to the EU,” says Bhardwaj, adding the sector largely lacks data on emissions. In April, the European Parliament also opposed allowing international carbon credits for CBAM compliance.
The first annual CBAM declaration for 2026 imports is due on September 30, 2027, marking the beginning of full financial compliance under the definitive regime. Hence, firms exporting to the EU would have to physically reduce emissions at source or operate under a domestic carbon pricing system accepted by the EU.
Don't Miss: EU’s carbon border fees on Indian exports likely to be minor initially: Report
As India scrambles to meet the immediate impact of the West Asia war, there is another external challenge it must confront. Increasingly, global trading partners are mandating that exporters cut their emissions by moving towards a low-carbon roadmap. This is being primarily driven by the European Union with its CBAM, which embeds carbon costs directly into market access conditions.
The EU accounted for 17% of India’s exports and was its third-largest trading partner in 2025. For India, the impact will be felt hardest in carbon-intensive, trade-exposed sectors such as steel, aluminium, cement and fertilisers. Exporters must comply with mandatory emissions disclosures, purchase certificates aligned with EU emission trading system prices, and subject themselves to stringent verification.
India has notified the Carbon Credit Trading Scheme (CCTS) with the objective of reducing, removing, or avoiding greenhouse gas emissions from the Indian economy by pricing such emissions through the trading of Carbon Credit Certificates. However, the market has not yet begun credit issuance under the compliance mechanism.
The European Union plans to charge the Carbon Border Adjustment Mechanism (CBAM) tax on 180 new steel and aluminium-based products from January 2028, and it will impact the medium and small enterprises dealing in manufacturing and industrial goods in India.
The Global Trade Research Initiative (GTRI), a trade think tank, says Indian industry should no longer view CBAM as a regulation affecting only steel and aluminium. GTRI estimates that by 2030, most industrial products entering the EU could potentially face some form of carbon tax exposure.
“It is a very challenging situation. Everything must be calculated product by product,” says Anil Bhardwaj, Secretary General of the Federation of Indian Micro Small & Medium Enterprises (FISME).
Don't Miss: Fresh export challenge for MSMEs: EU plans to expand carbon tax to 180 more steel, aluminium products
Bhardwaj explains that SMEs are completely dependent on grid power, where coal-based thermal power constitutes 80-85% of the supply. This is not the case for large industry, because the latter can set up their own captive power plant and have green energy wheeled into their plant.
“We are talking to the government about how green power can be provided to clusters exporting to the EU,” says Bhardwaj, adding the sector largely lacks data on emissions. In April, the European Parliament also opposed allowing international carbon credits for CBAM compliance.
The first annual CBAM declaration for 2026 imports is due on September 30, 2027, marking the beginning of full financial compliance under the definitive regime. Hence, firms exporting to the EU would have to physically reduce emissions at source or operate under a domestic carbon pricing system accepted by the EU.
Don't Miss: EU’s carbon border fees on Indian exports likely to be minor initially: Report
As India scrambles to meet the immediate impact of the West Asia war, there is another external challenge it must confront. Increasingly, global trading partners are mandating that exporters cut their emissions by moving towards a low-carbon roadmap. This is being primarily driven by the European Union with its CBAM, which embeds carbon costs directly into market access conditions.
The EU accounted for 17% of India’s exports and was its third-largest trading partner in 2025. For India, the impact will be felt hardest in carbon-intensive, trade-exposed sectors such as steel, aluminium, cement and fertilisers. Exporters must comply with mandatory emissions disclosures, purchase certificates aligned with EU emission trading system prices, and subject themselves to stringent verification.
India has notified the Carbon Credit Trading Scheme (CCTS) with the objective of reducing, removing, or avoiding greenhouse gas emissions from the Indian economy by pricing such emissions through the trading of Carbon Credit Certificates. However, the market has not yet begun credit issuance under the compliance mechanism.