EU’s Carbon Border Adjustment Mechanism (CBAM) and India’s Response 2026

CBAM is the European Union’s climate-trade instrument designed to prevent “carbon leakage” (relocation of carbon-intensive production to countries with weaker climate policies). It requires EU importers of certain goods to buy certificates equal to the embedded emissions in those products, priced in line with the EU Emissions Trading System (ETS).

Key facts:

- Covered sectors (initial list): Cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.

- Timeline: Transitional phase (reporting only, no financial cost) ran from October 2023 to December 2025. The definitive phase began on 1 January 2026, creating financial obligations (certificate purchases and surrender occur later; first full settlement for 2026 imports is due by 30 September 2027). A 50-tonne de minimis threshold applies for most goods.

- Mechanism: Importers declare verified embedded emissions and surrender CBAM certificates. Article 9 allows deduction of any carbon price already paid in the country of origin.

- India’s exposure and concerns: Significant for iron & steel and aluminium exports (several billion dollars annually). India views CBAM as a unilateral, discriminatory trade barrier that undermines the principle of Common But Differentiated Responsibilities and Respective Capabilities (CBDR-RC), raises compliance and verification costs, and can act as green protectionism.

- India’s response: Consistent opposition at COP31 (Antalya, November 2026), BRICS and other forums. Domestically, the Carbon Credit Trading Scheme (CCTS)—an intensity-based compliance market for hard-to-abate sectors notified under the Energy Conservation Act framework—aims to create a domestic carbon price that can be deducted under CBAM’s Article 9. India continues to press for climate finance, technology transfer and equitable treatment while negotiating the India-EU FTA (no blanket CBAM exemption secured).

UPSC relevance: GS Paper III (Environment, Climate Change, Economy, International Relations). Links carbon markets, trade policy, climate equity, India’s net-zero pathway and multilateral negotiations.

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Question

Consider the following statements regarding the European Union’s Carbon Border Adjustment Mechanism (CBAM):

1. CBAM entered its definitive (financial) phase on 1 January 2026, under which importers of covered goods must eventually purchase and surrender certificates corresponding to embedded emissions.

2. The initial list of covered sectors includes iron and steel, aluminium, cement, fertilisers, electricity and hydrogen.

3. India has obtained a full exemption for its exports from CBAM obligations under the India-EU Free Trade Agreement negotiations.

4. Article 9 of the CBAM regulation permits deduction of a carbon price already paid under a domestic scheme (such as India’s Carbon Credit Trading Scheme) from the CBAM liability.

Which of the statements given above are correct?

(a) 1, 2 and 4 only

(b) 1 and 2 only

(c) 2, 3 and 4 only

(d) 1, 2, 3 and 4

Correct answer: (a)

Brief reasoning: Statements 1, 2 and 4 accurately reflect the design and timeline of CBAM and the interaction with domestic carbon pricing. Statement 3 is incorrect—India has consistently opposed CBAM as a unilateral measure and has not secured a blanket exemption in the FTA talks.