India is unlikely to get a longer implementation period or special dispensation for its MSMEs, under the EU’s stringent Carbon Border Adjustment Mechanism (CBAM), the transitional phase for which started on October 1, sources have said.

The Indian government, however, hopes to be ready with its system of accredited carbon verifiers and a fully functional carbon credit trading system (CCTS), to help Indian exporters of steel and aluminium meet the prescribed EU carbon norms by January 2026 — when the proposed carbon taxes will actually kick in.

“The EU has started discussions with India on CBAM regulations. While the bloc has made it clear that there will be no significant exceptions for India, as there aren’t many MSMEs that export steel and aluminium, it is ready to sort out the country’s concerns on putting in place all the required systems. So, we are hopeful that by January 2026, when the EU will start applying the carbon taxes, we will be in a position to meet its requirements,” an official said.

Carbon levy

The CBAM is a regulation introduced by the EU to put a “fair” price on carbon emitted during the production of items identified as carbon-intensive from non-EU countries. This will be in the form of higher import levies which will be applicable from January 2026. 

While the items covered under CBAM include cement, iron and steel, aluminium, fertilizers, electricity and hydrogen, in India, the hardest hit sectors could be iron and steel, and aluminium.

Exporters from these two sectors  may end up paying 20-35 per cent additional import levies if their carbon emission compliance cannot be established, per a report by the Delhi-based research body, Global Trade Research Initiative. 

Carbon verifiers

India is initiating discussions with the EU to get recognition for its carbon verifiers, which will be accredited by the Bureau of Energy Efficiency under the Ministry of Power, so that they can audit carbon content in goods exported from India to the bloc.

“The eligibility criteria of such agencies will be determined or based on the recommendations of the National Steering Committee for Indian Carbon Market. The agencies so accredited will perform the functions for the purpose of CCTS as determined by the Bureau of Energy Efficiency,”  another official said. 

“Once the carbon verifiers  and their processes are recognised by the EU, they will be able to give out certifications stating that a particular product being exported to the EU has gone through a certain level of carbon emission. Certain markers can be used. The EU can then accept this certification under CBAM instead of going through its own processes again,” the first official explained.

As of now, with the transition mechanism in place from October 1, Indian exporters will have to comply only with the basic emission reporting norms to export to the EU, the official added.