Indian Steel Firms' Profitability May See 25–30% Impact After EU Carbon Tax
Indian companies are going ahead with various carbon-reduction plans to counter the impact.
The profitability of Indian steel companies exporting to the European Union may see a 25–30% impact after the implementation of the carbon border adjustment mechanism in 2026.
The EU's carbon tax, which will come into effect in 2026, aims to protect domestic manufacturers of products in six sectors—iron and steel, aluminium, cement, fertiliser, electricity and hydrogen—that undertook large capital expenditures to comply with European emission standards against cheap, non-compliant imports.
Indian steel exporters will have to pay between €60 and €80 per tonne of carbon emissions over and above the standards mandated under the CBAM. At present, India exports around 29% of its total steel exports to Europe and around 40% of that is likely to be impacted, according to industry analysts that NDTV Profit spoke with.
The carbon intensity of Indian steel producers, at 2.6 tonnes of carbon emissions per tonne of crude steel, is around 12% higher than that of global steel suppliers. This will require massive investments in carbon technologies to catch up to global norms, especially when it is out of line with companies' initial net-zero targets.
Under the CBAM guidelines, European importers have to disclose quarterly data on the emission levels of the slate of products imported till December 2025. The period between October 2023 and December 2025 is a transition period.
From Jan. 1, 2026, full application of the CBAM will commence with carbon payments and third-party verification of emissions data. From 2026, a default value for the products will be assigned to companies that have not disclosed the data and they will have to either pay the difference as carbon tax or buy equivalent carbon credits.
During the transition period, default values can be used for up to 20% of the product components. However, after January 2026, only actual emissions data will be considered.
The steel majors—Tata Steel Ltd., JSW Steel Ltd. and ArcelorMittal Nippon Steel India—are likely to be negatively impacted as they will have to invest heavily in carbon-reduction technologies against their original plans to go net zero.
There can be a 25–30% impact on steel exporters at the current pricing level of steel after the imposition of the CBAM, according to an official of a steel company with knowledge of the matter.
European companies are already paying around €80 per tonne of CO2 emissions and making huge investments in carbon-reduction technologies and mechanisms. Any cheap imports from non-compliant countries will harm their domestic manufacturing, the official said on condition of anonymity.
In order to address Indian exporters' concerns, Minister of Commerce and Industry Piyush Goyal is engaging with the European Union. The government is also mulling incentives or subsidies to encourage Indian industries to adopt cleaner technologies and reduce their carbon footprint.
Measures To Counter The Impact
To counter the impact, Indian companies are going ahead with various carbon-reduction plans, like shifting their conventional energy sources to renewables and controlling sulphur dioxide and nitrogen dioxide emissions.
Various banks and non-banking financial companies are also incentivising companies to phase out old conventional fossil fuel-based power plants and replace them with renewable plants.
The Indian government is also working on ways to either defer or reduce the provisions under the CBAM guidelines in discussions with the EU Commission. At the domestic level, it is planning to regulate carbon emissions in the country through a carbon tax on exports.
The CBAM is a call to action for India to expedite the development of its own compatible mechanisms, enabling Indian industries to produce verified and accredited emission statements for the EU, according to Anu Chaudhary, head of environmental, social and governance at Uniqus Consultech. "This would require robust systems on par with international standards, particularly those set forth by the EU Emissions Trading System."
India plans a carbon trading scheme by 2025. While initially voluntary, it may be considered to be regulatory in the near term, Chaudhary said.
For India to effectively participate in the global carbon market and meet international regulatory standards, it is imperative that it align the framework with the EU ETS and other global standards to ensure international acceptance, according to Chaudhary.
Voluntary carbon markets are buoyant across the world, and companies can offset carbon emissions by compensating with investments in projects that reduce or remove greenhouse gases from the atmosphere, according to Mollshree Garg, India managing partner at ERM.
"(The) EU is just the first to levy carbon taxes, (and) we will see this being eventually adopted by all developed countries," Ramnath Iyer, chief executive officer of ESGDS, said. "To stay competitive, our manufacturing processes have to change, and the government can help by providing an option to buy renewable energy from the grid."
Garg pointed out that Indian exporters could explore voluntary carbon-offsetting options as part of their CBAM compliance strategy.
While the EU is a significantly large market, Indian exporters can consider diversifying their export markets to reduce reliance on any single region, Garg said. "Exploring markets with less stringent carbon regulations can help mitigate the impact of CBAM."
