By Shubham Thakur
Published by CleanCarbon.ai | Topic: EU & UK CBAM, International Trade Law & Carbon Markets
As the European Union moves closer to full financial enforcement of its Carbon Border Adjustment Mechanism (CBAM), global trading partners are assessing its economic and legal ramifications. India, the world’s second-largest steel producer with over $100 billion in annual trade with the EU, stands at a critical junction.
In this episode of Carbon Edge by CleanCarbon.ai, host Shubham Thakur speaks with Dr. Manuj Bhardwaj, a globally recognized expert on carbon markets and trade law. Dr. Bhardwaj is the only lawyer to become an IPCC doctoral scholar, having advised multilateral institutions including the World Bank and the World Trade Organization (WTO) in Geneva.
In this transcript, Dr. Bhardwaj outlines why CBAM operates as a unilateral protectionist barrier, introduces the concept of “reverse climate finance,” and identifies the triple challenge confronting Indian exporters.
Executive Summary & Core Takeaways
- The Triple Challenge for Exporters: Indian manufacturers face three structural hurdles under CBAM: legal ambiguity, insufficient facility-level carbon data systems, and a lack of accredited institutional support.
- “Reverse Climate Finance”: Rather than fulfilling Paris Agreement commitments through climate finance transfers to the Global South, CBAM redirects capital from developing nations back to developed economies via carbon tariffs.
- Impact on Indian Export Volumes: Steel and aluminum exports from India to the EU dropped by approximately 24.5% year-over-year (from $7.71 billion down to $5.82 billion in FY25), driven largely by CBAM compliance friction and regulatory uncertainty.
- SMEs and Value Chain Risks: Micro, Small, and Medium Enterprises (MSMEs) acting as tier-1 and tier-2 suppliers to major steel producers face the highest risk of market exclusion due to a lack of verified Scope 1 and Scope 2 carbon accounting capabilities.
- Avoid Retaliatory Tariffs: India should focus on harmonizing its domestic Carbon Credit Trading Scheme (CCTS) with European frameworks rather than enacting retaliatory carbon border taxes that risk further disrupting global trade.
Full Interview Transcript
Global Trade Disruption and the "Triple Challenge"
Shubham Thakur: Hello and welcome to this episode of Carbon Edge, a podcast series by CleanCarbon.ai decoding everything about CBAM. I’m Shubham Thakur, Climate Communications Expert and CBAM Specialist.
Today, we have with us Dr. Manuj Bhardwaj, a globally renowned CBAM and carbon markets expert. He is an IPCC doctoral scholar who has worked with multilateral organizations including the World Bank and the World Trade Organization (WTO) in Geneva.
Dr. Bhardwaj, how is CBAM reshaping global trade dynamics, particularly for developing countries like India, and how prepared are we for these shifts?
Dr. Manuj Bhardwaj: Thank you, Shubham, and thanks to CleanCarbon.ai for inviting me to this timely discussion.
For a country like India, which conducts over $100 billion in bilateral trade with the European Union, understanding CBAM and its systemic challenges is critical. The primary risk lies with Micro, Small, and Medium Enterprises (MSMEs) and large-scale industrial manufacturers embedded in export value chains. MSMEs are severely ill-prepared; many lack foundational knowledge regarding greenhouse gas (GHG) accounting standards.
Indian manufacturers face a triple challenge with CBAM:
| THE TRIPLE CHALLENGE FOR EXPORTERS | |
|---|---|
| 1. Unclear Laws | Complex, evolving regulatory interpretations. |
| 2. Insufficient Data Systems | Lack of digitized facility data. |
| 3. Lack of Institutional Support | No accredited local verifiers. |
- Unclear and Unilateral Laws: Rapidly shifting regulatory demands creating compliance friction.
- Insufficient Data Systems: A lack of standardized, facility-level digital monitoring systems.
- Lack of Institutional Support: Absence of mutual recognition agreements for domestic verifiers.
Unless India and other developing nations rapidly align domestic policies with EU and upcoming UK standards, exporters face a high risk of losing access to critical European markets. With existing macroeconomic disruptions—from the Ukraine conflict to Middle East tensions—unilateral climate tariffs add severe regulatory friction that threatens broader economic stability.
Is CBAM a Fair Climate Policy or Protectionist Trade Barrier?
Shubham Thakur: The European Commission maintains that CBAM is designed solely to prevent carbon leakage and support the EU’s “Fit for 55” target. However, recent trade data shows Indian steel and aluminum shipments to the EU dropped significantly from $7.71 billion down to $5.82 billion in FY25—a 24.5% decline attributed largely to CBAM reporting compliance. Is CBAM acting as a protectionist trade barrier disguised as climate policy?
Dr. Manuj Bhardwaj: Unquestionably, CBAM operates as a protectionist, unilateral trade barrier. The way the EU designed and rolled out this policy targets the economies of the Global South without prior multilateral consensus.
In my doctoral thesis and upcoming book, I describe this dynamic as “reverse climate finance.”
Under the 2015 Paris Agreement, developed nations pledged to provide $100 billion annually in climate finance to help developing countries execute green energy transitions. That commitment remains largely unfulfilled. Instead, CBAM flips this obligation: capital flows from developing nations to developed economies in the form of carbon tariffs and certificate purchases.
If the European Union intended to curb global carbon leakage effectively, it would establish joint energy transition support mechanisms—funding green hydrogen, clean power, and sustainable manufacturing jobs across developing trading partners.
Furthermore, CBAM was introduced unilaterally outside climate forums such as UNFCCC COPs or UNEP frameworks. A trade policy intended to address global emissions must be negotiated as a Multilateral Environmental Agreement (MEA) alongside developing partners and BRICS nations, rather than imposed unilaterally.
Retaliatory Measures vs. Domestic Policy Harmonization
Shubham Thakur: How is CBAM impacting trade relationships between importers and suppliers? Secondly, as nations like the UK, Canada, the US, and Australia consider their own carbon border adjustments, should India introduce a retaliatory CBAM structure, or leverage its domestic Carbon Credit Trading Scheme (CCTS)?
Dr. Manuj Bhardwaj: Regarding free trade agreement (FTA) negotiations—such as the ongoing India-EU and India-UK FTA talks—CBAM remains an overarching challenge.
In my view, India should not enact a retaliatory CBAM. Introducing retaliatory tariffs would trigger escalating trade disputes and further destabilize global supply chains.
Instead, India must establish a domestic carbon pricing framework—such as the Carbon Credit Trading Scheme (CCTS)—that is recognized by trading partners. If India prices carbon domestically, the EU CBAM mechanism allows for equivalent deductions, preventing double taxation while retaining tax revenue within India.
From a legal and regulatory standpoint, Indian exporters currently face four primary operational hurdles:
- Legal & Regulatory Ambiguity: Indian exporters lack clarity on how EU/UK CBAM demands conflict with or overlap with Indian environmental laws.
- Terminology Conflicts: Statutory definitions for terms like “embedded emissions,” “default benchmark values,” and “simple vs. complex goods” differ from Indian regulatory terminology.
- Lack of Domestic Carbon Pricing Alignment: India lacks a mandatory, cross-sectoral carbon price mapping directly to EU ETS auction benchmarks.
- Verification and Accreditation Gaps: EU CBAM mandates that emissions reports be audited by EU-accredited independent verifiers. India currently lacks accredited domestic verifiers recognized under a Mutual Recognition Agreement (MRA) with the European Commission.
Additionally, contractual liability under Indian contract law remains ambiguous regarding whether importers or exporters bear financial responsibility for misreported data or default penalty adjustments.
Competitive Strategies for Indian Steel & MSMEs
Shubham Thakur: The Indian Ministry of Steel recently introduced a Green Steel Taxonomy to define emission intensities. Given that Indian steel manufacturers operate under intense scrutiny while producing cost-effective steel, what immediate steps should companies take to maintain a competitive advantage?
Dr. Manuj Bhardwaj: The Indian steel sector produces high-quality, low-cost steel, making it a primary target for external trade scrutiny. To safeguard competitiveness under CBAM and national green taxonomy frameworks, steel producers—especially MSMEs—must implement four operational measures:
| ACTION PLAN FOR STEEL EXPORTERS |
|---|
| 1. Adopt ISO 14064 & GHG Protocol for Scope 1 & 2 measurement. |
| 2. Digitize plant-level carbon data for audit readiness. |
| 3. Partner with EU-recognized verification bodies early. |
| 4. Train internal technical teams on CBAM registry reporting. |
- Standardize Emissions Accounting: Adopt ISO 14064 and GHG Protocol standards to measure facility-level Scope 1 (direct) and Scope 2 (indirect electricity) emissions systematically.
- Digitize Carbon Data: Replace manual record-keeping with automated digital tracking tools to ensure traceability, data integrity, and third-party audit readiness.
- Engage Accredited Verifiers Early: Establish relationships with EU-accredited verification agencies while advocating for national-level Mutual Recognition Agreements.
- Build Internal Compliance Expertise: Train in-house engineering and accounting teams on CBAM registry XML uploads and communication templates.
Failing to report verified, primary installation data forces EU importers to apply EU default values, which carry steep regulatory penalty markups that reduce product price competitiveness.
Lastly, Indian policymakers must broaden their consultative process. Formulating effective carbon trade policies requires engaging a wider spectrum of independent trade lawyers, IPCC scientists, WTO scholars, and technical specialists—not relying solely on narrow internal committees.
Shubham Thakur: Thank you, Dr. Manuj Bhardwaj, for providing these clear legal and economic perspectives on CBAM and global trade.
Dr. Manuj Bhardwaj: Thank you, Shubham. It was a pleasure participating.