EU’s carbon border fees on Indian exports likely to be minor initially: Report

The European Union’s (EU’s) carbon border fees on Indian exports are likely to be relatively minor initially, and the country’s planned carbon credit trading scheme will further reduce the cost burden on Indian exporters by allowing CBAM fees to be deducted at source, says an assessment.

The findings come from Sandbag—a think tank—which states that Indian goods will face costs equivalent to 2.6% of EU-India goods trade, excluding trade in services, under initial carbon border tax conditions.

It further says the recently agreed EU recognition of India’s planned carbon credit trading scheme will further reduce the cost burden on Indian exporters by allowing CBAM fees to be deducted at source.

This new analysis shows that if India’s carbon credit schemes were to reach just 25% of the EU’s internal carbon price, it could reduce CBAM costs to Indian producers by 42%, which is the equivalent of only 1.5% of EU-India trade in goods.

Carbon Border Adjustment Mechanism (CBAM) is expected to be applied fully from January 2026 to imports of iron & steel, aluminium, cement, fertilisers, electricity and hydrogen, with plans for expansion into further sectors in the future. Under its design, CBAM allows exporters to deduct carbon costs already paid at home, to avoid double-charging.

India has flagged CBAM as a trade barrier. It has been preparing to blunt the costs of CBAM by implementing its own carbon trading programme and aiming to triple its renewable energy capacity by 2030.

However, India’s stance on CBAM may be evolving, given recent agreement with the EU to have its own carbon trading scheme recognised as an equivalent measure that will mean the Indian government, rather than the EU, will retain revenues associated with taxation on fossil fuel usage in relevant sectors.