India and EU Strengthen Talks on Carbon Markets and CBAM
<p>India and the European Union met in New Delhi on October 12, 2026, to continue discussions on carbon pricing, emissions verification and the EU's Carbon Border Adjustment Mechanism. The meeting took place as CBAM entered its definitive phase, imposing new compliance burdens on Indian exporters of steel, aluminium and other covered products.</p><p>For UK businesses that import from India or compete with Indian suppliers, these developments matter. CBAM is reshaping global supply chains and forcing manufacturers worldwide to measure and reduce embedded emissions. Understanding how major trading partners are responding helps UK firms anticipate cost shifts, supplier pressures and competitive dynamics in sectors where carbon now carries a price.</p><p>The talks did not produce exemptions or delays. Instead, both governments committed to deeper technical cooperation on carbon markets, monitoring systems and the recognition of domestic carbon-pricing mechanisms. The EU acknowledged India's progress in building its own carbon market, while India pressed for greater transparency on CBAM calculation methods and verification standards.</p><p>Indian exporters face immediate commercial pressure. Steel shipments to the EU fell by more than a third in financial year 2024 to 2025, partly due to CBAM uncertainty. Aluminium exports also declined. Smaller manufacturers, many of which supply larger exporters indirectly, are struggling to collect emissions data and meet new reporting requirements without dedicated compliance teams.</p><h2>How CBAM applies to covered imports from 2026</h2><p>CBAM requires EU importers to account for the carbon emissions embedded in certain goods. The mechanism currently covers iron and steel, aluminium, cement, fertilisers, electricity and hydrogen. From January 1, 2026, importers must calculate the emissions associated with each shipment and, from 2027 onwards, purchase certificates to cover those emissions.</p><p>The transition period ran from October 2023 to December 2025. During that phase, importers reported emissions but did not pay for certificates. The definitive phase began in January 2026. Importers receiving covered goods in 2026 must submit their first annual declarations by September 30, 2027, and purchase the corresponding certificates by February 2027.</p><p>Although the legal obligation sits with EU importers, exporters outside Europe often bear part of the cost. Buyers may renegotiate contracts, demand price reductions or switch suppliers if compliance becomes too expensive. Consequently, Indian steelmakers and aluminium producers are under pressure to demonstrate lower emissions or risk losing market share.</p><p>CBAM is designed to prevent carbon leakage. This occurs when production shifts to countries with weaker climate regulation, undermining the EU's domestic emissions reductions. By equalising the carbon cost of imports and domestic production, the mechanism aims to protect European manufacturers while encouraging cleaner production globally.</p><h2>India's steel and aluminium sectors under strain</h2><p>India was the EU's largest supplier of iron and steel in 2024, with imports worth approximately €3.9 billion according to Eurostat. Steel and aluminium together accounted for $7.71 billion of Indian exports to the EU in financial year 2023 to 2024. That figure fell to $5.82 billion in 2024 to 2025, a decline of more than 24 per cent.</p><p>Steel exports dropped by 35 per cent to $3.05 billion. Aluminium shipments fell by nearly 10 per cent. The Global Trade Research Initiative attributes part of this decline to CBAM uncertainty, as buyers delayed orders or sought alternative sources while waiting for clearer compliance rules.</p><p>An earlier assessment by the Indian Council for Research on International Economic Relations estimated that iron and steel exports to the EU could fall by nearly 24 per cent if the carbon price reached $86 per tonne of CO2. Non-ferrous metals such as aluminium were projected to decline by around 10 per cent. GTRI has also estimated that exporters may need to cut prices by 15 to 22 per cent to remain competitive once certificate payments begin.</p><p>The impact extends beyond headline export figures. Many smaller manufacturers supply larger exporters or traders indirectly. One industry estimate suggests that 3,000 to 4,000 Indian firms export iron, steel and aluminium directly to the EU, with another 25,000 to 30,000 businesses involved as upstream suppliers.</p><p>These smaller enterprises often lack the resources to measure emissions accurately, hire consultants or invest in verification systems. However, they still face pressure from buyers to provide carbon data and reduce the emissions intensity of their products. Without support, many risk being squeezed out of EU supply chains entirely.</p><h2>What India and the EU agreed to discuss</h2><p>The October meeting produced a joint commitment to continue dialogue on several technical areas. Both sides agreed to keep talking about CBAM methodologies, the recognition of carbon-pricing mechanisms and improvements to monitoring, reporting and verification systems. They also committed to expanding technical cooperation and capacity building, particularly around carbon markets.</p><p>India has been developing its own Carbon Credit Trading Scheme, which aims to create a regulated market for emissions reductions in energy-intensive sectors. The EU acknowledged this progress and shared updates on CBAM implementation. Both governments recognised that closer alignment between their systems could reduce duplicate compliance costs for Indian exporters.</p><p>Recognition is a key issue. If Indian firms can demonstrate that they have already paid a carbon price under domestic regulations, they may be able to claim a deduction when calculating their CBAM liability. However, this depends on the EU accepting India's carbon-pricing system as equivalent or comparable, a technical and political question that remains unresolved.</p><p>Verification standards are equally important. CBAM requires emissions data to be verified by accredited bodies using EU-approved methods. Indian exporters need clarity on which verification providers are acceptable, what documentation is required and how default emissions values will be applied when verified data is unavailable.</p><h2>Trade agreement and CBAM run in parallel</h2><p>India and the EU concluded trade negotiations on January 27, 2026. As of October 12, the agreement had not been signed and still required completion of domestic procedures before entering into force. The trade deal does not exempt Indian exports from CBAM.</p><p>Instead, it includes provisions for consultations and technical cooperation on carbon pricing, emissions verification and implementation. It also contains a forward-looking most-favoured-nation clause, meaning that if the EU grants more favourable treatment to another country's exports under CBAM, India could claim similar treatment.</p><p>Consequently, any tariff reductions or market access improvements under the trade agreement will operate alongside CBAM obligations. Indian exporters of steel, aluminium and other covered products will still need to calculate embedded emissions, share data with EU importers and ensure compliance with certificate requirements.</p><p>For UK businesses, this parallel structure is familiar. The UK is developing its own carbon border mechanism, expected to come into force in 2027. Like the EU system, it will apply to imports regardless of existing trade agreements. UK importers and exporters will therefore need to navigate both tariff schedules and carbon compliance frameworks when dealing with international suppliers.</p><h2>CBAM compliance burden falls hardest on smaller firms</h2><p>Large Indian steelmakers and aluminium producers have begun investing in emissions monitoring, renewable electricity and lower-carbon production methods. Many have hired consultants, installed metering equipment and trained staff to meet CBAM requirements. Smaller manufacturers often cannot afford these measures.</p><p>CBAM requires detailed data on production processes, energy sources and raw material inputs. Firms must track emissions at the installation level, calculate embedded carbon using approved methodologies and submit data to accredited verifiers. For businesses with limited administrative capacity, these tasks can be overwhelming.</p><p>Even when small firms are not directly responsible for purchasing CBAM certificates, they still face pressure from buyers. Large exporters and trading companies are passing compliance requirements down the supply chain, demanding emissions data and threatening to switch suppliers if costs become too high.</p><p>This creates a risk of supply chain fragmentation. Smaller manufacturers unable to meet data requirements may lose access to EU markets, while larger firms consolidate production and invest in compliance infrastructure. The result could be reduced supplier diversity and increased concentration in carbon-intensive sectors.</p><p>India has raised these concerns in multilateral forums, including the World Trade Organization. New Delhi argues that CBAM imposes disproportionate costs on developing countries and risks undermining climate equity. India has indicated that it will challenge the mechanism under international trade rules if necessary.</p><h2>Key facts on India, the EU and CBAM</h2><ul><li>India and the EU agreed on October 12, 2026, to continue technical discussions on CBAM, carbon markets and emissions verification, but no exemptions or delays were granted.</li><li>CBAM entered its definitive phase on January 1, 2026, requiring EU importers to account for emissions in covered goods and purchase certificates from February 2027 onwards.</li><li>India was the EU's largest supplier of iron and steel in 2024, with imports worth approximately €3.9 billion, making Indian exporters highly exposed to CBAM costs.</li><li>Indian steel and aluminium exports to the EU fell by more than 24 per cent in financial year 2024 to 2025, partly due to CBAM uncertainty and compliance pressures.</li><li>An estimated 3,000 to 4,000 Indian firms export iron, steel and aluminium directly to the EU, with another 25,000 to 30,000 businesses involved as indirect suppliers.</li><li>India is developing its own Carbon Credit Trading Scheme, and discussions with the EU focus on recognition of domestic carbon-pricing mechanisms to reduce duplicate compliance costs.</li><li>The India-EU trade agreement concluded in January 2026 includes provisions for cooperation on carbon pricing but does not exempt Indian exports from CBAM obligations.</li></ul><h2>Why UK businesses should pay attention</h2><p>The UK is developing its own carbon border adjustment mechanism, expected to apply from 2027. Although details are still being finalised, the system will likely mirror key features of the EU's approach, including coverage of steel, aluminium, cement and other carbon-intensive products.</p><p>UK importers will face similar compliance obligations to their EU counterparts. They will need to calculate embedded emissions, verify data and purchase certificates to cover the carbon content of covered goods. Exporters to the EU will already be familiar with these requirements, but UK firms importing from countries such as India will need to build new compliance processes.</p><p>The India-EU discussions offer lessons for UK businesses. First, dialogue between governments does not remove commercial pressure. Indian exporters are still scrambling to improve emissions data and reduce carbon intensity, even as technical talks continue. UK firms should therefore assume that compliance deadlines will not shift and begin preparing now.</p><p>Second, smaller suppliers are most vulnerable. UK importers relying on networks of small and medium-sized manufacturers overseas may face disruption if those suppliers cannot meet data requirements. Consequently, it makes sense to engage early with key suppliers, understand their emissions profiles and support capacity building where possible.</p><p>Third, carbon pricing is becoming a permanent feature of international trade. The EU, UK and other jurisdictions are embedding emissions costs into customs procedures, creating a new layer of compliance alongside tariffs, rules of origin and product standards. Businesses that integrate carbon management into procurement, contracts and supplier relationships will be better positioned to manage these changes.</p><p>For UK manufacturers competing with Indian suppliers, CBAM may level the playing field. If UK producers already face domestic carbon costs through the emissions trading scheme or other measures, CBAM reduces the competitive advantage enjoyed by imports from countries with weaker climate regulation. However, this benefit depends on enforcement and on the alignment of UK and EU systems.</p><h2>What businesses exporting to the EU or India should consider</h2><p>Exporters to the EU need accurate emissions data. CBAM applies to goods imported into the EU, so UK businesses selling steel, aluminium or other covered products must provide buyers with verified carbon information. Firms that cannot do so will see their emissions calculated using default values, which are often higher than actual emissions and therefore more costly.</p><p>Investing in measurement, reporting and verification now can reduce CBAM exposure later. This might involve installing metering equipment, switching to renewable electricity, improving energy efficiency or obtaining third-party verification of emissions data. Our <a href="https://sbs.eco/compliance/">carbon reporting compliance services</a> help businesses collect, verify and report emissions in line with CBAM and other regulatory frameworks.</p><p>Businesses trading with India should monitor developments in India's carbon market. If the EU grants recognition to India's carbon-pricing system, Indian suppliers may gain a competitive advantage by demonstrating compliance with domestic regulations. UK firms importing from India or competing with Indian suppliers need to understand these dynamics and adjust sourcing strategies accordingly.</p><p>Smaller businesses should not assume CBAM is someone else's problem. Even firms that do not import directly may be affected if their customers or suppliers are subject to CBAM obligations. Supply chain pressure is already cascading down to smaller manufacturers in India and elsewhere. UK SMEs should therefore review their exposure, engage with customers and consider whether carbon data requests are likely to arrive soon.</p><p>Public sector suppliers face additional scrutiny. Procurement Policy Note 06/21 requires central government suppliers to publish carbon reduction plans and demonstrate progress towards net zero. CBAM adds another layer of carbon accountability, particularly for suppliers of construction materials, infrastructure components and other goods with significant embedded emissions. Training on these requirements is available through the <a href="https://sbs.eco/sbs-academy/">SBS Academy</a>.</p><h2>Where to find official guidance and updates</h2><p>The European Commission publishes detailed guidance on CBAM implementation, including calculation methods, verification requirements and transitional rules. UK businesses exporting to the EU should consult the Commission's <a href="https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en">CBAM information page</a> for the latest updates.</p><p>The UK government has committed to introducing its own carbon border mechanism and has published consultation documents outlining the proposed approach. Further details are expected in 2026. Businesses should monitor announcements from the <a href="https://www.gov.uk/government/organisations/department-for-energy-security-and-net-zero">Department for Energy Security and Net Zero</a> and HM Revenue and Customs.</p><p>India's Ministry of Environment, Forest and Climate Change oversees the development of the Carbon Credit Trading Scheme. Firms with Indian suppliers or operations may wish to follow developments in India's carbon market, as these could affect CBAM liability and supplier competitiveness.</p><p>For businesses seeking practical support with carbon reporting, supply chain emissions or compliance with CBAM and related regulations, we provide tailored advice through our <a href="https://sbs.eco/net-zero-program/">net zero programme</a>. This includes Scope 3 emissions analysis, supplier engagement and preparation for carbon border mechanisms in the UK and EU.</p>
