By Shubham Thakur
Published by CleanCarbon.ai | Topic: EU CBAM, Trade Policy, Industrial Decarbonization & ICRIER Insights
The European Union’s Carbon Border Adjustment Mechanism (CBAM) represents a fundamental structural shift in international trade policy. Accountable for nearly 23% to 25% of India’s global iron and steel shipments, the European market presents both compliance challenges and modernization pressures for domestic exporters.
In this episode of the Carbon Edge podcast series by CleanCarbon.ai, host Shubham Thakur sits down with Dr. Saon Ray, Senior Fellow at the Indian Council for Research on International Economic Relations (ICRIER) in New Delhi. With decades of experience advising multilateral bodies and national ministries on international trade and climate economics, Dr. Ray outlines the operational implications of CBAM for large integrated steelmakers versus MSMEs, evaluates digital infrastructure readiness, and maps out strategic decarbonization pathways.
Executive Summary & Core Takeaways
- Significant Export Exposure: The EU absorbs roughly 23%–25% of India’s total iron and steel exports, representing approximately $5.56 billion in direct sector exposure in 2023 (~10.5% of total exported steel value).
- Large Producers vs. MSMEs: Large integrated steelmakers (BF/BOF route) face direct carbon certificate costs. Micro, Small, and Medium Enterprises (MSMEs) benefit from the de minimis clause threshold for minor shipments, but suffer from high GHG measurement costs and a lack of audit readiness.
- Digital Infrastructure Bottlenecks: While tier-1 steelmakers conduct routine energy audits, calculating facility-specific emissions profiles across complex manufacturing routes remains a primary technical hurdle across the supply chain.
- Dual Identity of CBAM: Recognized domestically as a non-tariff trade barrier (NTB), CBAM simultaneously acts as a stringent climate standard that forces industrial modernization and green technology investments.
- Strategic Imperative: Short-term market diversion to non-CBAM regions offers temporary relief, but long-term competitiveness requires upgrading plant technologies and aligning domestic trading mechanisms like the Carbon Credit Trading Scheme (CCTS).
Full Interview Transcript
India’s Steel Sector Exposure to EU CBAM
Shubham Thakur: Hello and welcome to this episode of the podcast by CleanCarbon.ai, which focuses on decoding the Carbon Border Adjustment Mechanism (CBAM).
Today, I am joined by Dr. Saon Ray, a Fellow at ICRIER in Delhi with decades of research experience in Indian trade and climate policy. Ma’am, how do you see CBAM impacting India’s iron and steel exports over the next five years?
Dr. Saon Ray: The iron and steel sector is a vital engine of India’s industrial economy. The European Union represents approximately 23% to 25% of India’s iron and steel export market.
In 2023, India’s overall financial exposure to CBAM within this sector was substantial—around $5.56 billion. While we observe shifting trade dynamics and share adjustments across global markets, it is essential to recognize that this 10.5% sector exposure applies primarily to finished steel products entering the European Union.
Large Integrated Producers vs. MSMEs: Who Faces Greater Risk?
Shubham Thakur: Who will experience a heavier operational and financial impact—the MSME sector or large industrial players?
Dr. Saon Ray: The primary financial impact falls squarely on larger integrated steel producers. This is largely due to CBAM’s de minimis provision, which waives certificate obligations for low-value, small-scale shipments typical of smaller suppliers.
CBAM IMPACT BREAKDOWN BY PRODUCER SIZE
Large Integrated Steelmakers (BF/BOF Route)
High direct financial exposure to EU CBAM certificate purchases.
High carbon intensity compared to global benchmarks.
Requires handholding to transition from PAT to CCTS trading.
MSMEs & Downstream Suppliers
Protected by ‘de minimis’ threshold on small physical shipments.
Struggles with high compliance, monitoring & GHG auditing costs.
Low awareness of facility-level Scope 1 and Scope 2 accounting.
However, MSMEs encounter a different, structural challenge: the high cost of monitoring, reporting, and verifying emissions, combined with a widespread lack of regulatory awareness. For larger firms, because India is still transitioning its carbon pricing architecture (moving from Perform, Achieve and Trade [PAT] toward the Carbon Credit Trading Scheme [CCTS]), the core hurdle is securing technical guidance to lower carbon intensity per tonne of steel produced.
Decarbonization Finance and Technology Access
Shubham Thakur: Should the European Union or national governments provide financial mechanisms to assist manufacturing companies during this transition?
Dr. Saon Ray: While direct financial subsidies remain a complex geopolitical negotiation, Indian industrial firms committed to net-zero pathways require direct access to advanced decarbonization technologies.
Our current primary steelmaking processes rely heavily on emission-intensive Blast Furnace-Basic Oxygen Furnace (BF/BOF) routes. Deploying alternative technologies—such as Green Hydrogen Direct Reduced Iron (DRI) or Electric Arc Furnaces (EAF) powered by renewable energy—demands massive capital investments and technology transfer frameworks.
Digital Data Infrastructure and Emission Profiles
Shubham Thakur: Do Indian industrial firms possess the necessary digital infrastructure to log, calculate, and report specific direct (Scope 1) and indirect (Scope 2) emissions data mandated by the EU?
Dr. Saon Ray: Data architecture represents a significant operational bottleneck. Most MSMEs lack the digital monitoring infrastructure needed for continuous emissions tracking.
Larger producers are relatively better positioned due to statutory energy audits. However, the bottleneck extends beyond simple digital data collection:
Non-Tariff Trade Barrier or Legitimate Climate Policy?
Shubham Thakur: In policy discussions, is CBAM viewed primarily as a non-tariff trade barrier or a climate policy tool?
Dr. Saon Ray: It functions as both:
- Non-Tariff Trade Barrier (NTB): Developing economies, including India, view CBAM as an asymmetric trade measure that penalizes exports from regions with different historical emissions and economic structures.
- Climate Policy Driver: Simultaneously, it enforces strict carbon intensity standards globally. While compliance imposes high short-term costs, it creates a compelling market incentive to modernize manufacturing infrastructure.
Shifting Business Models and Strategic Recommendations
Shubham Thakur: How will these intersecting pressures reshape trade routes and business models for Indian exporters? What are your final recommendations for maintaining competitiveness?
Dr. Saon Ray: Exporters face a volatile international trading environment marked by US trade tariffs, EU CBAM, and upcoming UK CBAM regulations. In the short term, companies may reallocate trade volumes toward non-regulated regional markets. However, market diversion is only a temporary hedge—long-term survival requires deep industrial decarbonization. Regulatory uncertainty remains the greatest hurdle; clear statutory frameworks are vital for companies planning long-term green capital expenditures.
To maintain international competitiveness, the Indian steel sector should focus on three priorities:
STRATEGIC ROADMAP FOR STEEL EXPORTERS
1. Accelerate Modernization: Treat CBAM as a catalyst to upgrade | plant technology rather than a mere tax burden.
2. Establish Installation-Level MRV: Deploy facility-level GHG | accounting aligned with ISO 14064 standards.
3. Build Adaptive Resilience: Pivot to low-carbon production to | ensure long-term agility across shifting global trade regimes.
- Leverage Policy as a Catalyst: Use CBAM compliance as an opportunity to modernize manufacturing efficiency and improve domestic air quality and public health.
- Build Standardized Monitoring Infrastructure: Implement accredited Measurement, Reporting, and Verification (MRV) systems to replace punitive default values with actual plant data.
- Enhance Operational Agility: Cultivate industrial resilience—firms that adapt their production processes to low-carbon standards will capture market share in an increasingly decarbonized global economy.
Shubham Thakur: Thank you, Dr. Saon Ray, for sharing your research and actionable guidance with us today.
Dr. Saon Ray: Thank you, Shubham.