EU’s Carbon Border Fees on Indian Exports Likely to Be Minor Initially: Sandbag Study

A new study by European think tank Sandbag has found that the European Union’s Carbon Border Adjustment Mechanism (CBAM) fees on Indian exports are likely to be relatively minor in the initial phase. The finding comes as Sandbag launches its CBAM Simulator, a first-of-its-kind public tool to model the impact of carbon border charges across countries and sectors.

According to the study, EU importers of Indian goods will initially face costs equivalent to just 2.6% of EU–India goods trade, or around €826 million. However, these costs could fall significantly as India implements its domestic Carbon Credit Trading Scheme (CCTS) — recently recognised by the EU as an eligible carbon pricing mechanism.

The analysis shows that if India’s carbon market achieves even 25% of the EU’s internal carbon price, CBAM costs could decline by 42%, to €480 million, representing only 1.5% of EU–India goods trade.

“Where local carbon taxes or carbon market prices are recognised, such as India’s new Carbon Credit Trading Scheme, these can be deducted from CBAM costs — allowing those revenues to remain in India,” Sandbag’s report noted.

CBAM Implementation and Scope

The EU’s Carbon Border Adjustment Mechanism is scheduled for full implementation in January 2026, initially covering imports of iron and steel, aluminium, cement, fertilisers, electricity, and hydrogen, with further expansion planned in subsequent years.

Under CBAM, importers must pay a carbon price comparable to that paid by EU producers under the EU Emissions Trading System (ETS). However, exporters can deduct any carbon costs already paid domestically, thereby preventing double taxation.

India’s Response and Policy Evolution

India has long been a vocal critic of CBAM, labelling it as a “disguised trade barrier” that unfairly targets developing economies. Commerce and Industry Minister Piyush Goyal had earlier remarked that the mechanism “does not meet the test of fair play” under international trade norms.

Yet, India’s position appears to be evolving. With the EU’s recognition of India’s planned carbon market, revenues from carbon taxation in key industries will now stay within India, easing the fiscal burden on exporters and mitigating trade disruptions.

This recognition comes at a critical juncture, as India and the EU continue negotiations on a Free Trade Agreement (FTA), which both sides aim to finalise by the end of this year.

India’s Decarbonisation Strategy

India, the world’s third-largest carbon emitter, is taking proactive steps to align with global climate goals. The country is:

• Launching its own Carbon Credit Trading Scheme (CCTS)

• Aiming to triple renewable energy capacity by 2030

• Encouraging industrial decarbonisation, particularly in steel and aluminium sectors — both heavily exposed to CBAM.

• Roughly two-thirds of India’s steel exports currently go to Europe, making CBAM a significant factor in future trade dynamics.

About the CBAM Simulator

Sandbag’s newly launched CBAM Simulator, released on 16 October 2025, is the first publicly available tool enabling policymakers, businesses, and civil society to explore CBAM impacts under different scenarios.

Users can model the effects of:

• Varying carbon price levels

• Recognised domestic carbon markets

• Sectoral expansions of CBAM

• This open-access tool aims to increase transparency and data-driven analysis in global climate policy.

About Sandbag

Sandbag is an independent European non-profit think tank dedicated to research and analysis on climate policy, carbon markets, and industrial decarbonisation. Its latest CBAM findings are based directly on simulations from its publicly released tool.