Carbon Border Adjustment Mechanism and India: Implications for Trade, Compliance, and Competitiveness

The Carbon Border Adjustment Mechanism (CBAM) is a policy tool through which the European Union (EU) pursues its ambitious climate policy to avoid carbon leakage. Under the current policy regime, imported products from countries with relatively lax emission standards stand an excellent chance of being less competitive. Subsequently, this poses a policy challenge for India, whose export-driven sectors are highly carbon-intensive, including but not limited to steel, aluminium, cement, and chemicals. Further, such sectors are also dependent on European market access. As the EU aims to reconcile global trade with its environmental ambitions, CBAM is bound to raise the price of exports from India, lowering the competitive advantage that Indian industries hold over those in Europe. This new dynamic has pressured exporters to bear additional economic burdens and meet enhanced greener production demands. Accordingly, this chapter explores the implications of carbon leakages, resulting in the need to implement an adjustment mechanism like CBAM. It further examines the structure of CBAM and its regulatory framework to identify the multifaceted consequences on other nations, specifically Indian exporters, while emphasizing the administrative and economic challenges imposed by CBAM’s emissions reporting and verification requirements. Finally, the chapter accentuates CBAM’s broader strategic, economic, and environmental implications, which may influence international trade dynamics, boost the competitiveness of low-carbon technology, and spur policy reforms in exporting nations.