The United States has launched an investigation into the European Union’s Carbon Border Adjustment Mechanism (CBAM), potentially opening a route for Indian steel, iron and aluminium exporters to seek similar concessions from the European bloc. The investigation examines how the EU calculates emissions embedded in imported products and the compliance requirements imposed on foreign suppliers.
For India, the opportunity lies in a forward Most-Favoured-Nation (MFN) provision negotiated as part of its trade agreement with the EU. If Washington secures more flexible treatment under CBAM, India could seek comparable concessions under that provision. However, the investigation does not automatically change EU rules, and Indian exporters will continue to face carbon-related costs unless the relevant terms are revised or relief is formally extended.
Key takeaways
- US investigation: The US Trade Representative has invited public comments from American small businesses until November 9, 2026, as part of its investigation into the EU’s CBAM.
- Potential benefit for India: A forward MFN provision in the India-EU trade agreement could help Indian exporters seek comparable concessions if the EU grants favourable treatment to the US.
- High potential cost: The Global Trade Research Initiative estimates that CBAM could translate into a 20%–35% tax on selected imports into the EU.
- Steel is particularly exposed: Indian steelmakers rely substantially on emissions-intensive blast furnace production, while access to quality steel scrap remains constrained.
- No automatic exemption: India’s possible relief depends on the outcome of US-EU discussions and the precise terms of any concessions.
- Long-term response: Indian manufacturers will need better emissions reporting, cleaner production technologies and more reliable access to scrap to remain competitive.
What Is the US Investigating in the EU’s Carbon Border Tax?
The US investigation focuses on the EU’s Carbon Border Adjustment Mechanism, a policy designed to apply a carbon cost to certain imported goods based on the emissions generated during their production. The mechanism is intended to reduce the competitive advantage that imported products could receive when manufacturers operate under less stringent carbon-pricing systems than those faced by European producers.
According to reporting by The Indian Express and Financial Express, the US Trade Representative (USTR) has raised concerns about how the EU calculates emissions for imported goods, particularly when companies do not submit verified, facility-specific emissions information.
The EU uses country- and sector-level production and energy data to estimate emissions when default values are applied. The US has objected to the additional mark-up applied to those default values and to the requirement that company-level emissions data be verified by an EU-accredited third party.
Washington argues that these requirements could increase compliance costs for American businesses, including smaller exporters. The investigation gives US businesses an opportunity to submit comments before the government decides whether further action is warranted.
The USTR’s consultation period runs until November 9, 2026, according to the published reporting. The investigation is still at a preliminary stage. It does not mean the EU has agreed to modify CBAM, nor does it establish that the US will impose retaliatory trade measures.
Which products fall under CBAM?
The EU mechanism covers imports in six broad categories: iron and steel, aluminium, cement, fertilisers, electricity and hydrogen.
These industries are particularly relevant because their production can generate substantial greenhouse-gas emissions. The carbon intensity of a product can vary significantly according to the manufacturing process, energy source, production facility and other factors.
| Sector | Why CBAM matters |
|---|---|
| Iron and steel | Production methods differ significantly in their carbon intensity |
| Aluminium | Smelting can require substantial electricity, making the energy mix important |
| Cement | Manufacturing generates emissions from fuel use and chemical processes |
| Fertilisers | Production can be energy-intensive and dependent on fossil fuels |
| Electricity | Carbon intensity varies according to the generation mix |
| Hydrogen | Production emissions depend heavily on the technology and energy source |
CBAM entered its definitive phase on January 1, 2026. The financial adjustment involves carbon certificates, with certificate sales and purchases for the 2026 reporting period scheduled to begin in 2027. This distinction matters: the mechanism’s definitive phase has started, but its payment and compliance arrangements follow a specific timetable.
How Could India Benefit From the US Investigation?
India’s potential advantage comes from the forward MFN provision negotiated under its trade agreement with the EU. According to a senior government official cited by The Indian Express, the clause could provide a basis for Indian industry to seek concessions comparable to those the EU grants the US under CBAM.
Most-Favoured-Nation treatment generally concerns non-discriminatory treatment between trading partners. In this case, the relevant forward provision is important because it may extend certain future benefits to India if comparable treatment is offered to another country.
The EU and the US addressed CBAM concerns in a joint statement issued in August 2025. The statement said the European Commission would work towards additional flexibility in implementing the mechanism, including in response to concerns about the treatment of American small and medium-sized businesses.
The current US investigation could put further pressure on the EU to explain or adjust aspects of its system. If the resulting negotiations lead to more favourable conditions for American exporters, Indian trade negotiators could explore whether those conditions are covered by the forward MFN provision.
However, the clause should not be interpreted as an automatic exemption from CBAM. Its practical effect will depend on the specific concessions granted, the products and businesses covered, and the legal terms governing the treatment of India under the agreement.
What would determine the benefit?
Three developments would be particularly important.
First, the US investigation would need to produce a concrete negotiating outcome or policy change rather than remain a consultation exercise. An investigation alone does not reduce the cost of exporting goods to Europe.
Second, the EU would need to provide identifiable concessions. These might concern compliance requirements, the treatment of smaller businesses or aspects of emissions calculations, depending on the final agreement. The available reporting does not establish which concessions, if any, will be granted.
Third, Indian officials would need to determine how the forward MFN provision applies to the concessions and pursue the appropriate process to obtain comparable treatment.
Until these steps occur, any benefit to Indian exporters remains a possibility rather than a confirmed policy outcome.
Why Indian Steel and Aluminium Exporters Face Higher Costs
CBAM presents a challenge for Indian exporters because the carbon intensity of production can influence the cost of selling covered goods into the EU. The Global Trade Research Initiative (GTRI), a trade-policy think tank, estimates that the mechanism could translate into a 20%–35% tax on selected imports into the bloc.
This estimate should not be treated as a uniform tax rate for every Indian shipment. The actual cost depends on the product, embedded emissions, applicable carbon pricing and the relevant compliance rules.
The exposure is particularly significant for steel. India exports iron, steel and aluminium products to Europe, and manufacturers using emissions-intensive production methods may face a greater cost burden than competitors with lower-emission processes.
Why steel production methods matter
Steel can be produced through different routes, with different emissions profiles.
The blast furnace–basic oxygen furnace (BF-BOF) route generally has higher emissions because it relies heavily on coal-based processes. Gas-based direct reduced iron (DRI) can have lower emissions, depending on the process and energy inputs. Scrap-based electric arc furnace (EAF) production typically has the lowest emissions among these routes when compared under suitable assumptions.
| Steelmaking route | General emissions profile | Relevance to Indian exporters |
|---|---|---|
| Blast furnace–basic oxygen furnace | Generally higher | Greater potential exposure to carbon-related costs |
| Gas-based direct reduced iron | Generally lower than BF-BOF | Potential transition pathway, depending on energy inputs |
| Scrap-based electric arc furnace | Typically lowest among these routes | Can reduce production emissions but depends on scrap availability and electricity sources |
Indian steelmakers rely substantially on blast furnace-based production. This makes the transition to lower-emission manufacturing important for companies that want to preserve their competitiveness in the European market.
The government has plans to expand scrap-based and electric arc furnace production under its green steel initiatives. Yet, moving towards lower-emission production requires access to suitable raw materials, investment in equipment, dependable energy supplies and the ability to verify emissions.
The steel scrap shortage complicates the transition
Access to quality steel scrap is a significant constraint. A May 2025 report by the Indian Council for Research on International Economic Relations (ICRIER), authored by Amrita Goldar, Kumar Abhishek and Sunishtha Yadav, said scrap accounted for approximately 20% of India’s steelmaking feedstock, with domestic availability of around 25 million metric tonnes annually.
Scrap-based production can reduce reliance on primary ironmaking, but manufacturers cannot simply switch production methods without securing adequate quantities of suitable material. Scrap quality, collection systems, processing infrastructure and competing demand can all influence availability and cost.
Indian industry has also raised concerns about EU restrictions on steel scrap exports, arguing that these measures, combined with CBAM, could create additional non-tariff barriers.
The policy challenge is therefore broader than the carbon charge itself. Indian producers need to reduce emissions while maintaining access to the materials and investment required to make cleaner production commercially viable.
What CBAM Means for India’s Trade Competitiveness
The EU is an important market for Indian industrial exports. If carbon-related costs raise the final price of Indian steel and aluminium, exporters could face pressure on margins or lose competitiveness against suppliers whose products have lower embedded emissions.
The impact will vary by manufacturer. Companies that can document lower emissions and provide verified facility-level data may be better positioned to demonstrate their carbon performance. Manufacturers relying on default emissions values could face different cost and compliance outcomes.
The new US investigation could create an opportunity for India to seek procedural flexibility or other concessions. But even if India obtains relief on some compliance requirements, it would not necessarily eliminate the underlying carbon costs or the commercial pressure to reduce emissions.
Exporters should therefore prepare for two parallel challenges: managing the immediate requirements of CBAM and improving the carbon performance of their production processes over time.
Why emissions data is becoming commercially important
Under CBAM, the ability to measure and document embedded emissions is an important part of exporting covered products. Companies may need reliable production data, consistent calculations and third-party verification where required.
For Indian exporters, stronger emissions accounting can help identify which production facilities or product lines face the greatest exposure. It can also provide customers with more transparent information when comparing suppliers.
Better data does not guarantee a lower carbon charge, but it can help companies establish their actual emissions rather than relying entirely on default assumptions where the rules allow verified company-specific data.
Businesses may also need to coordinate with suppliers, energy providers and logistics partners to improve the quality of information used in emissions calculations. Smaller exporters could find these processes expensive, particularly if they lack specialised compliance teams.
This is one reason the US investigation matters to India: changes to the EU’s treatment of smaller businesses or its emissions-verification framework could have implications beyond American exporters if India can secure comparable concessions.
What Indian Exporters and Policymakers Should Watch
The immediate priority is to follow the USTR consultation and any subsequent US-EU discussions. The outcome will determine whether the investigation produces a formal policy response, negotiated flexibility or no material change.
Indian trade officials will also need to assess the precise scope of the forward MFN provision. The existence of the clause creates a potential route to comparable treatment, but its application must be evaluated against the final wording of any EU concessions.
At the company level, exporters should examine their exposure by product, destination and production route. They should also assess whether their emissions data is sufficiently robust to support reporting and verification requirements.
For steel producers, investment in lower-emission processes and improved scrap collection could reduce long-term exposure. However, these changes require capital, suitable raw materials and infrastructure. Policy support and access to quality scrap could influence how quickly manufacturers can make the transition.
The US investigation should consequently be viewed as one part of a larger trade and industrial-policy issue. India may have an opportunity to seek more favourable treatment, but the long-term competitiveness of its exporters will also depend on their ability to manufacture goods with lower emissions and demonstrate that performance credibly.
The Bigger Picture
The US investigation highlights the growing intersection between climate policy and international trade. Carbon-related rules increasingly influence how products are priced, documented and sold across borders. For India, the issue is particularly important because industrial exports such as steel and aluminium are exposed to both emissions-related costs and the investment required to decarbonise production.
A forward MFN provision could give Indian negotiators a way to seek concessions if the EU offers more flexible CBAM treatment to the US. Yet that possibility should not distract from the structural challenge facing Indian manufacturers: exporters will need to improve emissions measurement, adopt cleaner production where commercially viable and secure the raw materials needed for that transition.
Looking Ahead
The next milestones are the November 9, 2026 deadline for public comments in the US investigation and any subsequent decisions by Washington and Brussels. The most important question is whether the process results in specific, enforceable changes to CBAM and whether those changes fall within the concessions India can seek under its forward MFN provision.
Until the negotiations produce a clear outcome, Indian exporters should not assume that carbon charges will be reduced or waived. The immediate strategy is to monitor the policy process, assess exposure to CBAM and strengthen emissions reporting while preparing for a market in which carbon performance is becoming an increasingly important element of export competitiveness.
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