Global Trade | Indian Manufacturing | Export Compliance
The European Union’s Carbon Border Adjustment Mechanism has entered its definitive phase. For Indian manufacturers exporting covered products to Europe, emissions data, supplier coordination and production efficiency are becoming increasingly important to export competitiveness.
For years, manufacturers competing in international markets have focused on product quality, pricing, delivery timelines and technical certifications. A new factor is becoming increasingly important: the carbon emissions associated with manufacturing a product.
The European Union’s Carbon Border Adjustment Mechanism, commonly known as CBAM, introduces a carbon-related financial and reporting framework for certain goods imported into the EU. It is designed to address the risk of “carbon leakage”—where production shifts to countries with less stringent carbon constraints—and to align the carbon cost of covered imports more closely with that faced by EU producers.
CBAM entered its definitive phase on 1 January 2026. The first annual declarations and corresponding certificate surrender for goods imported during 2026 are due by 30 September 2027 under the current framework.
For Indian exporters, this is not simply another environmental policy to monitor. It can affect the information European customers request, how suppliers document their production processes, how contracts allocate compliance-related costs and how manufacturers plan investments in energy efficiency.
The opportunity is equally important: manufacturers that understand their emissions, maintain reliable records and improve resource efficiency may be better positioned to respond to changing buyer requirements.
1. What Is CBAM—and Why Should Indian Manufacturers Care?
CBAM is the European Union’s mechanism for applying a carbon-related cost to the embedded emissions of specified imported goods. It complements the EU Emissions Trading System, under which covered EU installations face carbon costs.
The intention is to reduce the risk that production moves outside the EU simply to avoid carbon constraints. The mechanism also creates an incentive for producers outside Europe to measure and reduce emissions associated with covered goods.
During the transitional phase from October 2023 through December 2025, the system primarily focused on reporting. The definitive regime began on 1 January 2026, introducing the financial and compliance framework for covered imports.
Under the current framework, authorised EU importers—or relevant indirect customs representatives—have formal obligations concerning CBAM declarations and certificates. Indian manufacturers do not automatically become the legal CBAM declarant simply because they export to Europe.
However, the exporter may need to provide detailed production and emissions information to its European customer, particularly where actual embedded emissions are used. This makes data collection and verification commercially important even when the formal legal obligation rests with the importer.
The practical question for Indian manufacturers is no longer just whether a European buyer will ask about carbon emissions. It is whether the supplier can provide reliable, product-relevant data when requested.
Official reference: European Commission, Carbon Border Adjustment Mechanism — https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en
2. Which Manufacturing Sectors Are Covered?
CBAM initially covers selected goods in six sectors:
- Iron and steel
- Aluminium
- Cement
- Fertilisers
- Electricity
- Hydrogen
The mechanism applies to defined goods and product classifications, not automatically to every product manufactured within these broad industries. The relevant EU customs classification, product description, origin and applicable legal provisions must be checked before determining whether a specific shipment falls within scope.
For Indian manufacturers, iron and steel and aluminium deserve particular attention because of their industrial scale, energy requirements and established trade links with European buyers.
Manufacturers of downstream products should not assume that every component containing steel or aluminium is automatically covered. Scope depends on the applicable product codes and rules.
Who should assess exposure first?
| Manufacturer or exporter | Priority action |
|---|---|
| Steel producers and exporters | Map exported product codes and establish production-route emissions data |
| Aluminium producers and exporters | Review electricity consumption, process emissions and supplier records |
| Cement manufacturers | Assess applicable product coverage and emissions calculation requirements |
| Fertiliser manufacturers | Review process emissions, energy use and relevant product classifications |
| Hydrogen producers | Check covered products and applicable emissions methodology |
| Engineering and component suppliers | Verify whether exported goods fall directly within CBAM scope; prepare for customer information requests where relevant |
The distinction between direct regulatory coverage and customer-driven supply-chain requests matters. A product may not be directly covered by CBAM, but a European customer could still request environmental data as part of its broader procurement or sustainability process.
3. The Numbers: Why India’s Exposure Matters
India’s potential exposure is significant in the metals sector.
NITI Aayog’s Trade Watch, April–June 2026 analysis reports that India’s merchandise exports to the European Union amounted to approximately US$84.7 billion in 2025. It identifies iron and steel exports of around US$3.9 billion and aluminium exports of approximately US$1.06 billion as major CBAM-covered export categories.
Together, these two categories represent nearly US$5 billion in exports to the EU, based on the figures in that analysis.
This does not mean the entire value of these exports will face the same additional cost. Actual exposure depends on product coverage, embedded emissions, applicable benchmarks and adjustments, the carbon price, and the legal rules in force.
Nevertheless, the scale illustrates why CBAM deserves attention from manufacturers and export-focused business leaders.
India’s steel emissions intensity: a competitive challenge
The same NITI Aayog analysis estimates average carbon emissions intensity for Indian crude steel at approximately 2.5–2.6 tonnes of CO₂ per tonne of steel. It compares this with around 1.0–1.2 tonnes of CO₂ per tonne for the EU average.
These are broad sector-level comparisons, not a calculation of the emissions or CBAM liability for any particular Indian shipment. Actual emissions vary substantially by production route, plant, energy source, product and calculation boundary.
The comparison nevertheless highlights an important issue: production routes that rely heavily on coal can have a higher carbon intensity than some alternative processes.
For manufacturers, the strategic question is whether they can measure their own emissions accurately, identify the main drivers and reduce avoidable energy and process losses without compromising product quality or cost competitiveness.
Sources: NITI Aayog, Trade Watch, April–June 2026 — https://www.niti.gov.in/node/2426; European Commission, CBAM sectors — https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism/cbam-sectors_en
4. The 2026–2027 Timeline Every Exporter Should Understand
The most important dates are not just future deadlines. Data for goods produced and imported during 2026 needs attention now.
Key milestones
1 January 2026 — Definitive CBAM regime begins
The definitive regime becomes applicable. Covered imports are subject to the relevant CBAM framework and obligations.
2026 — Track product and emissions data
Manufacturers supplying covered goods should work with their European buyers to understand the applicable reporting approach, emissions information required and any verification arrangements.
February 2027 — Certificate purchases are scheduled to open
Under the current framework, the common central platform is scheduled to begin selling CBAM certificates from February 2027 to authorised declarants.
30 September 2027 — First annual declaration and certificate surrender
The first annual declaration and corresponding certificate surrender for covered goods imported during 2026 are due by 30 September 2027 under the current rules.
These dates make 2026 an important preparation period. A manufacturer that waits until the first declaration deadline approaches may find it difficult to reconstruct plant-level data, obtain information from raw-material suppliers or resolve disagreements over emissions calculations.
Regulatory details can change. Exporters should verify the latest European Commission guidance and coordinate with their EU customers rather than rely on an old compliance calendar.
Source: European Commission, CBAM communication and news — https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism/cbam-communication-and-news_en
5. What Does CBAM Mean Financially for Indian Exporters?
CBAM certificates are linked to the carbon price under the EU Emissions Trading System. The relevant calculation is not simply “tonnes exported multiplied by a fixed fee.”
The applicable liability depends on the embedded emissions of covered goods, the rules governing the calculation, applicable benchmark and free-allocation adjustments, any eligible carbon price effectively paid in the country of production, and the relevant certificate price.
The EU importer has the formal certificate obligation under the framework. Commercially, however, the resulting cost may influence price negotiations, sourcing decisions and the terms of supply agreements.
An illustrative example—not a CBAM liability estimate
Suppose a covered shipment has 1,000 tonnes of product and, purely for illustration, the applicable embedded emissions figure is 2 tonnes of CO₂ per tonne of product.
That would represent 2,000 tonnes of embedded CO₂ before considering the specific CBAM adjustments and calculation rules.
If an illustrative carbon-price assumption were €80 per tonne of CO₂, the simple multiplication would be €160,000.
This is not the amount automatically payable under CBAM. It is only a simplified illustration of why emissions intensity and carbon prices can have a material relationship. Actual certificate requirements may differ after the applicable methodology, benchmarks, adjustments and other legal provisions are applied.
Exporters should avoid quoting a CBAM cost to a customer based solely on a broad industry emissions average or an assumed certificate price.
Where commercial pressure may appear
European customers may ask suppliers to:
- Provide emissions information for specific products or production routes.
- Explain how emissions data was measured or calculated.
- Supply supporting energy and production records.
- Clarify whether data is plant-specific, product-specific or based on permitted default values.
- Cooperate with verification or audit processes where required.
- Discuss how compliance-related costs are reflected in quotations and contracts.
For Indian manufacturers, reliable data can become a commercial asset. It helps a supplier respond faster, reduces uncertainty during procurement discussions and supports evidence-based negotiations.
6. What Data Should an Indian Factory Start Collecting?
The first step is to understand what information the relevant EU importer needs for the specific product. The applicable CBAM methodology and reporting boundary should determine the data collection plan.
A general plant-level carbon inventory may be useful, but it is not automatically sufficient for a product-specific CBAM calculation.
A. Product and shipment information
Maintain a structured record of:
- Product descriptions and applicable customs classification.
- Production site and relevant production route.
- Quantities manufactured and exported.
- Shipment periods and associated customer orders.
- Raw materials and inputs relevant to the covered product.
- Any applicable product-specific calculation requirements.
The customs classification is particularly important. Do not assume that a broad commercial description such as “steel components” is enough to determine coverage.
B. Energy and production information
Depending on the applicable methodology, relevant records may include:
- Electricity consumption.
- Fuel consumption by process.
- Production volumes.
- Process-related emissions.
- Relevant precursor materials and their emissions information.
- Allocation methods used to link plant emissions to product output.
- Data sources, assumptions and calculation periods.
The purpose is to build a traceable relationship between the production process, the reported emissions and the exported product.
C. Supporting evidence and governance
A manufacturer should document:
- Meter readings and energy bills.
- Production records and batch information.
- Equipment and process data where relevant.
- Supplier declarations for relevant inputs.
- Calculation methodologies and emission factors used.
- Changes to processes, fuels or operating conditions.
- Review and approval records.
- Any applicable verification documentation.
The company should assign responsibility for maintaining these records. A spreadsheet with unclear ownership, undocumented assumptions or inconsistent units is unlikely to be a robust long-term solution.
Important: These are practical starting points, not a universal checklist of mandatory data fields. Exact requirements differ by sector, product and applicable CBAM methodology. The European Commission has published guidance for non-EU operators, including sector-specific guidance for iron and steel and aluminium.
7. How MSMEs Can Prepare Without Building a Large Compliance Department
For smaller manufacturers, CBAM readiness can appear expensive and technically complicated. The answer is to begin with a focused process rather than attempt to build a comprehensive carbon-management system overnight.
Step 1: Identify your actual exposure
List products exported to the EU and the corresponding customs codes. Ask your importer or customs adviser to confirm which goods are covered under the applicable rules.
Do not spend money calculating CBAM-specific emissions for every product in your catalogue before establishing which products require attention.
Step 2: Speak to the European customer
Ask the customer for its expected data format, reporting period, calculation methodology and verification expectations.
Clarify whether the customer needs data for formal CBAM compliance, broader supplier sustainability reporting, or both. These are related but not identical requirements.
Step 3: Assign an internal owner
A designated person should coordinate production, maintenance, finance, procurement and export documentation.
In a smaller factory, this may be an existing quality, operations or compliance manager, supported by a qualified external specialist where needed.
Step 4: Establish a baseline
Collect the relevant energy and production data for the specified period. Record the methodology and any data gaps instead of filling them with unsupported assumptions.
Step 5: Validate before submitting
Review units, reporting boundaries, production volumes and calculations. Obtain the required verification or independent review where applicable.
Step 6: Build a realistic improvement plan
Prioritise changes that improve both operational performance and emissions intensity, such as reducing energy waste, improving process control or increasing the use of lower-emission energy where technically and commercially appropriate.
The objective is to create a repeatable process that the business can maintain, rather than a one-off document assembled just before a deadline.
8. Can Better Manufacturing Efficiency Reduce CBAM Exposure?
Improving energy and process efficiency can reduce emissions in some circumstances. But a factory must distinguish between reducing total energy consumption, reducing emissions per unit of production and satisfying the specific CBAM calculation rules.
These outcomes are related, but they are not interchangeable.
For example, reducing electricity consumption per tonne of output may improve the factory’s operational efficiency. The effect on reported embedded emissions will depend on the applicable electricity emissions factor, production process and calculation methodology.
Likewise, switching fuels or purchasing renewable electricity may affect reported emissions only to the extent recognised under the applicable rules and evidence requirements.
Practical areas to investigate
Energy efficiency: Identify compressed-air leaks, inefficient motors, unnecessary idling and avoidable process losses.
Process optimisation: Improve yield, reduce scrap and stabilise production conditions where this also reduces resource use.
Material efficiency: Evaluate raw-material utilisation and relevant precursor inputs, accounting for the applicable emissions boundary.
Cleaner energy: Assess renewable electricity, electrification or alternative fuels on technical feasibility, reliability and lifecycle economics.
Measurement systems: Install or improve metering where it enables better operational control and reliable reporting.
Supplier engagement: Request relevant emissions information from suppliers of covered or emissions-relevant inputs, where required by the calculation method.
A manufacturer should not assume that any single intervention automatically reduces its CBAM certificate requirement. Measure the operational improvement, then confirm how it translates into the applicable emissions calculation.
9. Will CBAM Make Indian Products Uncompetitive in Europe?
There is no single answer for every Indian manufacturer.
The effect depends on the product, production route, embedded emissions, carbon price, applicable adjustments, customer contracts and the ability of competing suppliers to deliver comparable quality and reliability.
Some exporters may face greater pressure where production is carbon-intensive and customers have limited flexibility to absorb additional costs. Others may have more room to respond through operational improvements, product differentiation, contract negotiations or a change in production mix.
It is also important to recognise that CBAM does not automatically prohibit imports from India. It establishes a framework for covered goods and their embedded emissions.
Three possible competitive responses
1. Compete on verified performance
Suppliers that can provide credible, product-relevant data may reduce uncertainty for customers and support more informed sourcing decisions.
2. Improve cost and resource efficiency
Where emissions reductions also lower energy, fuel or material costs, they may strengthen the supplier’s commercial position. The financial outcome must be measured rather than assumed.
3. Diversify markets without ignoring compliance
Manufacturers can review their exposure across customer segments and markets. However, market diversification should complement—not replace—compliance with requirements applicable to existing EU business.
For many suppliers, the most immediate risk may be commercial uncertainty: a buyer who cannot obtain the required information may prefer a supplier with better documentation and a clearer response process.
That is a business risk worth addressing before it becomes an urgent procurement issue.
10. What Should Indian Exporters Do Over the Next 90 Days?
A 90-day programme can help a manufacturer establish the basics of CBAM readiness.
Days 1–30: Map products and customers
- Identify EU-bound products and shipments.
- Confirm applicable product classifications and CBAM scope.
- Contact relevant EU buyers.
- Request the buyer’s current data requirements.
- Appoint an internal coordinator.
Deliverable: A documented list of products, customers, scope status and information requirements.
Days 31–60: Build the data foundation
- Map relevant production processes.
- Collect energy and production records.
- Identify required precursor and supplier information.
- Review existing environmental and energy data.
- Record gaps in measurement, traceability and documentation.
- Confirm the relevant emissions methodology with qualified support.
Deliverable: A baseline data pack and a prioritised gap register.
Days 61–90: Validate and improve
- Review the calculation method and supporting records.
- Arrange applicable verification or technical review.
- Identify the highest-impact operational improvement opportunities.
- Agree responsibilities and reporting frequency.
- Discuss data submission formats and timelines with the EU buyer.
- Establish a process for updating records as production changes.
Deliverable: A repeatable reporting process, an improvement roadmap and a clear customer communication plan.
This is a practical readiness programme, not a substitute for the formal deadlines or sector-specific legal requirements.
11. Questions Every Manufacturing CEO Should Ask
Before the next export review meeting, leadership should ask:
- Which products do we export to the EU, and which are actually covered by CBAM?
- Do we know the relevant emissions intensity of those products under the applicable methodology?
- Can we trace the data to production, energy and relevant input records?
- Who is responsible for providing information to each European customer?
- Do we understand what the importer needs for its formal compliance obligations?
- Have we identified any measurement or verification gaps?
- Which energy or process improvements could improve both operating cost and emissions performance?
- Are our quotations and contracts clear about responsibility for data, verification and potential compliance-related costs?
- Have we checked the latest EU rules and guidance rather than relying on assumptions from the transitional phase?
- Can we respond to a customer data request quickly and consistently?
These questions turn CBAM from a distant regulatory issue into a concrete export-readiness exercise.
Conclusion: Carbon Data Is Becoming Part of Export Readiness
The European Union’s CBAM framework represents a significant change for covered imports. For Indian manufacturers, the implications extend beyond environmental reporting into production data, supplier coordination, commercial negotiations and operational efficiency.
The first compliance deadline for 2026 imports is 30 September 2027. That may appear distant, but establishing reliable product-level emissions information, resolving data gaps and coordinating with buyers can take time.
The most sensible approach is to start with product scope, understand the importer’s requirements, build a traceable data process and identify realistic efficiency improvements.
Not every Indian manufacturer is directly covered. Not every product faces the same calculation or financial impact. And no factory should make investment decisions based on a generic industry emissions figure alone.
But for manufacturers that depend on European customers, the ability to provide credible emissions information is becoming part of export readiness.
Those who prepare early can make better decisions, respond to buyer requests with greater confidence and evaluate opportunities to strengthen their competitiveness in a market where carbon performance is becoming increasingly relevant.
Sources and Further Reading
- European Commission — Carbon Border Adjustment Mechanism
https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en - European Commission — CBAM Sectors and Non-EU Operator Guidance
https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism/cbam-sectors_en - European Commission — CBAM Communication and News
https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism/cbam-communication-and-news_en - NITI Aayog — Trade Watch, April–June 2026
https://www.niti.gov.in/node/2426 - Press Information Bureau, Department of Commerce — CBAM Awareness Session for Exporters, 18 August 2026
https://www.pib.gov.in/PressReleasePage.aspx?PRID=2301032&lang=1®=3
Editorial note: This article is for general industry information, not legal, customs, tax or emissions-verification advice. CBAM scope, calculation methods and compliance requirements depend on the applicable legislation and product classification. Exporters should consult current European Commission guidance, their EU importers and qualified specialists before making compliance or investment decisions.
MFG Magazine
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