The EU's Carbon Border Adjustment Mechanism (CBAM) represents a fundamental change in the way international trade will increasingly be conducted. What began as an environmental measure is becoming an important determinant of market access and competitiveness. Indian exporters should not view it merely as another European compliance requirement, but as an early indication of how carbon intensity will influence global trade over the coming decade.
The definitive phase of EU CBAM commenced on January 1. It covers 6 carbon-intensive sectors - iron and steel, aluminium, cement, fertilisers, electricity, and hydrogen. EU importers above the prescribed threshold must account for embedded emissions and surrender CBAM certificates linked to the EU Emissions Trading System carbon price. Importantly, a carbon price effectively paid in the country of production can be deducted from the CBAM liability.
