Carbon Border Adjustment Mechanism (CBAM) is rewiring hard-to-abate industries
- Mar 4
- 11 min read
Updated: Apr 11
Iron & Steel industry is no longer competing on cost, material of construction grades, and strength alone. It is now also competing on embodied carbon and emissions resulting from the production process followed.
With the European Union’s Carbon Border Adjustment Mechanism (CBAM) regulatory mandate having entered its financial phase from 1st January 2026, carbon intensity is becoming a measurable, reportable and ultimately payable variable in global trade. For steel exporters, this transforms decarbonization from a sustainability ambition into a balance-sheet consideration.
Setting the context
Carbon Border Adjustment Mechanism (CBAM) is a European Union policy instrument established under regulation (EU) 2023/956 (as amended by Regulation (EU) 2025/2083). It places a carbon price on goods imported into the EU that is equivalent to what EU producers pay under the EU Emissions Trading System (EU ETS). Its aim is to reduce global greenhouse gas emissions by incentivizing cleaner production methods and penalizing emissions intensive polluting production processes. The idea is to prevent companies from relocating production to countries with lax environmental standards, a phenomenon known as carbon leakage.
Under CBAM, exporters outside EU must provide accurate emissions data for each shipment, otherwise default values as defined by EU in the Annex I to IV of the implementing regulation would be applied for calculating total emissions, thus, raising compliance burden for EU importers. EU importers may end up absorbing the cost or pass it back to their suppliers, which can erode supplier margins and market share in the EU.
Given the relatively higher emissions intensity of Non-EU steelmaking processes (such as usage of coal in blast furnaces for steel making), Indian steel exporters may face added levies or tightened pricing to remain competitive in international markets.
Therefore, understanding how CBAM works, its implications, and who bears the cost is essential for businesses and policymakers alike.
Key aspects of CBAM regulations include:
Carbon pricing: CBAM requires reporting and verification of embedded greenhouse gas emissions tied to the production of goods covered in its scope. Coverage is product-specific by CN (Combined Nomenclature) code - not sector-wide. Each product must be individually verified against Annex I of Regulation (EU) 2023/956. Then a cost is assigned to final emissions value to make a level playing field for all businesses involved. Refer this link to check if your exports fall into the scope of CBAM taxation or not.
Here’s a simple formula to remember: CBAM cost = quantity (metric tonnes) × total embedded emissions (CO2e / metric tonnes) × weekly EU ETS price
Border adjustments: CBAM certificate purchase costs apply to imports from January 2026 onwards. EU importers must get themselves registered with DG Taxud by 31st March 2026 as authorized declarants to continue importing material and surrender CBAM certificates covering 2026 imports with their first annual CBAM declaration, due in 2027. To be able to do this, they are asking their suppliers for providing emissions data embedded in the goods on a quarterly basis in 2026 (in most cases). The emissions data is important for estimating their approximate CBAM expenditure at the end of the year and thus affects business financials.
Who Must Register: EU importers (or their indirect customs representatives) importing more than 50 tonnes of covered goods (iron & steel, aluminum, cement, fertilizers, hydrogen, electricity) per calendar year.
Consequences of Non-Registration: A valid CBAM registration number will be required for customs clearance; without it, goods cannot be cleared.
Process: Applications for authorization must be submitted via the CBAM Registry.
CBAM certificate price: According to the European Commission, Carbon Border Adjustment Mechanism (CBAM) certificate prices for 2026 will be calculated on a quarterly basis. Each quarter’s price will be based on the average auction price of carbon allowances in the EU Emissions Trading System (EU ETS), ensuring that CBAM prices remain aligned with the EU’s domestic carbon market.
The first certificate price under CBAM will soon be published by the EC on April 7 2026.
Publication schedule for CBAM certificate prices in 2026 is as follows:
Applicable Period | First Quarter (Q1 2026) | Second Quarter (Q2 2026) | Third Quarter (Q3 2026) | Fourth Quarter (Q4 2026) |
Declaration Date | April 7 2026 | Jul 6 2026 | Oct 5 2026 | Jan 4 2027 |
Declared Price | €75.36 per tCO2e | |||
Calculation basis | Based on weekly average of EU Emissions Trading System (EU ETS) auction clearing prices. | |||
Who pays the CBAM cost on goods?
In case of a company importing Steel HRC or Aluminium rods into the European Union under CBAM rules,
Importers: Legally responsible for paying carbon price on the embedded emissions at the port of shipment.
Exporters: May indirectly bear costs if importers negotiate lower prices to offset the CBAM cost.
Consumers: Could face higher prices if importers pass on this additional burden on consumers.
This means:
Iron & Steel products produced from high-emission blast furnace process faces direct cost exposure.
Facility-level emissions data is no longer optional. CBAM requires plant-level, installation-specific emissions reporting. Corporate ESG disclosures, sustainability reports or industry averages are not accepted.
Electricity sourcing, process technology, and raw material mix directly influence trade competitiveness.
How embedded emissions are defined under CBAM compliance?
Embedded emissions are the total greenhouse gases released during the production of a good, measured in tCO₂e per ton of product (functional unit). They include:
a) Direct Emissions (Scope 1): Combustion of fuels (coal, gas, oil) at the production site; chemical process reactions (e.g., reduction of iron ore in a blast furnace; PFC emissions from aluminium electrolysis).
b) Precursor Emissions: Emissions embedded in raw material inputs - e.g., pig iron or coke used to make steel must carry their own carbon footprint into the steel calculation.
NOTE - For Iron & Steel and Aluminium: Only direct emissions count from 2026. Indirect emissions from grid electricity are NOT included for these two sectors. Hence, suppliers cannot reduce their embedded emission of goods through market-based instruments.
Some production capacity figures within the context of Large Indian Steelmakers
Major steel producers in India are expanding blast furnace installations across various sites and boosting finished steel capacity in downstream production. This raises questions as to how this anticipated increase will be absorbed by the Indian markets and what role exports will play under the EU CBAM regime as Indian steel production capacities quickly expand.
Company Name | Current domestic crude steel capacity | Target capacity by 2030 | Recent expansions and planned additions |
JSW Steel | 32.4 million tons/ annum | 50 million tons/annum | BF upgrades at Vijayanagar plant to boost capacity from 3 MTPA to 4.5 MTPA |
TATA Steel | 26.6 million tons/ annum | 40 million tons/annum | Capacity increase of 5 MTPA at Kalinganagar plant in Sep 2024. Finished steel capacity to increase at Meramandali (Odisha) by 2.5 MTPA. |
Steel Authority of India Limited (SAIL) | 20 million tons/ annum | 35 million tons/annum | Hot metal capacity at Bokaro to be increased to 7.55 MTPA from 5.25 MTPA. Doubling capacity at Rourkela steel plant to 9.8 MTPA by 2030. |
Jindal Steel | 12.6 million tons/ annum | 15.6 million tons/annum by Q4 of 2026. | Near term plans to raise capacity at Angul steel plant from 9 MTPA to 12 MTPA. |
Arcelor Mittal Nippon Steel (AM/NS) India | 9 million tons/ annum | 15 million tons/annum by second half of 2026 | Long term capacity target of 40 MTPA. Expanding automotive steel manufacturing facilities. |
Source: Argus Report 2026
Indian Steel Capacity Additions and Strategic Directions (2025-2026)
Company | Location | Project Type | Capacity (MTPA) | Technology Route | Investment (INR) | Status (2026) | CBAM Risk |
Hi-Tech Valley, Ludhiana (Punjab) | Greenfield | ~0.75 | The state-of-the-art facility will use 100% steel scrap as raw material, sourcing ~40% scrap from the Company’s steel recycling plant in Rohtak, Haryana | ~₹3,200 Cr | Commissioned (Mar 2026) | Aligned. Designed to achieve CO₂ emissions < 0.3 tonnes per tonne of steel. | |
Anakapalli, (Andhra Pradesh) | Greenfield | ~17.8 (Ph-I - 7.3 MTPA Ph-2- 10.5 MTPA) | Blast Furnace- BOF (initially) | ~₹1.35 lac Cr (Phase-I - 55,964 Cr Phase-2 - 80,000 Cr) | Foundation Stone laid (Mar 2026) | High CBAM exposure (future retrofits needed) | |
Hazira (Gujarat) | Expansion phase | To scale up from existing 9 MTPA to 15 MTPA | Blast Furnace- BOF Post completion of the Essar Steel acquisition in Dec 2019, AM/NS executed a $0.8-billion debottlenecking project to realize the Hazira plant’s 9 MT nameplate capacity. | ~60,000 Cr | Commissioned a new continuous galvanizing line (CGL) in 2025, which can produce AHSS with strength levels up to 1180 MPa for evolving automotive applications | High CBAM exposure (future retrofits needed) | |
(also known as Vikram Ispat (formerly), Welspun Maxsteel (formerly), was incorporated by JSW Steel in 2024). | Salav, Murud, (Raigarh, Maharashtra) | ~10 MTPA | EAF / DRI; Iron other/unspecified. Investing to create a 4 MTPA plant, expanding from its current 0.9 MTPA Direct Reduced Iron (DRI) capacity to meet global demand for low-carbon steel, particularly for the EU market. | ₹50,000–60,000 Cr | Announced / Early execution | Medium. CBAM hedge. | |
Dolvi (Maharashtra) | Ph-3 Brownfield Expansion | To scale up from existing 10 MTPA to 15 MTPA | Blast Furnace (BF-BOF) As part of an integrated plant (approx. 5-10 MTPA capacity), the facility utilizes Conarc Technology and compact strip production (CSP) for high-efficiency HRC production. A new 4.5 MTPA blast furnace is planned for 2026. | — | Scheduled for completion in 2027 | High CBAM exposure (future retrofits needed) | |
Gadchiroli, Chamorshi (Maharashtra) | Greenfield | ~25 MTPA | Blast Furnace (BF route) Planned as a large-scale integrated steel plant, which traditionally involves a Blast Furnace (BF) or Direct Reduced Iron (DRI) facility combined with a Basic Oxygen Furnace (BOF) | ~₹1 lakh Cr | Land acquisition / early stage | High CBAM exposure (future retrofits needed) | |
Gadchiroli (Maharashtra) | Greenfield | Not disclosed yet | Likely BF/DRI hybrid, rolling mill and captive power | ~₹10,000 Cr | Approvals stage Foundation stone laid, public hearings completed, phased execution underway | High risk | |
Chandrapur (Maharashtra) | Iron ore mining & Integrated steel expansion | ~0.36 MTPA (Sponge Iron) + 4 MTPA pellet plant + 1.2 MTPA ISP | State-of-the-art wire rod mill with 1.2 MTPA capacity with Automatic Storage and Retrieval System (ASRS) for Wire Rod Coils, which will ensure damage-free handling, controlled storage environment and enhanced traceability. | Not disclosed | Commissioned (Sep 2025) + Ongoing + Ongoing (~2028) | Indirect CBAM exposure (The iron ore will be transported to the pellet plant through slurry pipelines, thus reducing the carbon footprint in the value chain) | |
Chamorshi, Gadchiroli (Maharashtra) | Integrated steel expansion | 4.5 MTPA blast furnace | DRI (coal-based) | Approvals stage | High CBAM exposure (future retrofits needed) | ||
Ranchi, Jharkand | Pilot under National Green Hydrogen Mission (NGHM) | ~3200 TPD | Vertical shaft based hydrogen-based Direct Reduced Iron (DRI) pilot plant. SAIL has partnered with Primetals Technologies for a hydrogen gas injection system at the Bokaro plant and signed an MoU with John Cockerill India to advance green steel technologies. | Supported by ₹347 crore in Govt funding under NGHM | Likely be commissioned by 2027 or 2028 | Aligned. Likely lesser exposure to CBAM. |
Also to mention the SteelRadar’s weekly quota assessment, based on European Commission data which shows initial quotas for various steel product categories were fully utilized within the first 10 days of Q1 2026, bringing the "remaining quota" to zero. China, Türkiye, and India achieved 100% utilization rates in multiple product categories.
CBAM regulatory stack
Regulation | Areas being addressed |
Foundational law adopted on May 10, 2023 and entered into force on May 17, 2023 | |
Adopted on August 17, 2023, establishes the reporting rules for the CBAM during its transitional phase from October 1, 2023, to December 31, 2025. | |
Published on December 30, 2024. Laying down rules regarding the establishment of a CBAM registry that would contain data on authorized CBAM declarants, applicants filing a request to be granted the status of authorized CBAM declarant (‘applicants’), operators, and accredited CBAM verifiers. | |
Adopted on December 16, 2025. Lays down rules regarding the calculation of the free allocation adjustment for the number of CBAM certificates to be surrendered. | |
Adopted on December 16, 2025 and final notification released on Dec 31, 2025. Lays down rules regarding the establishment of default values, calculation of embedded emissions, monitoring methodology, treatment of indirect emissions, precursor materials. |
Key industrial cases that prove decarbonization has now become a trade strategy
In anticipation of this, major steelmakers across Japan, Europe, the United States, and South Korea have accelerated capital deployment into electric arc furnaces (EAFs), hydrogen-based direct reduction (H2-DRI), renewable power integration, and advanced process control systems. Over the past few years, several initiatives have moved beyond announcements and entered commercial execution. These projects are not experimental. They are structural responses to CBAM risk, and supply-chain decarbonization pressure from automotive and industrial segment buyers.
Project / Initiative | Company | Country | Technology | Milestones | Reason for success |
HYBRIT fossil-free steel | SSAB / LKAB / Vattenfall | Sweden | Hydrogen-based DRI + EAF | First fossil-free steel delivered to Volvo (2021 -2023) | End-to-end hydrogen value chain integration with commercial-grade output. |
Yawata 340t Consteel EAF with with GE Vernova Direct Feed | Nippon Steel + Tenova + GE Vernova | Japan | Record-breaking 340 ton EAF installation with advanced power integration. | Nippon Steel has selected Tenova, in partnership with GE Vernova, to supply a new electric arc furnace for its Yawata Works in Feb 2026. | Integrated power stability + high virgin iron unit blending capability. |
Port Talbot EAF Transition | Tata Steel | United Kingdom | BF-to-EAF conversion | Tata Steel signed £500 million Grant Funding Agreement with UK Government for £1.25 billion green steel project in Port Talbot in 2024. | Strong public funding support and clear decarbonization roadmap |
Big River Steel Expansion | U.S. Steel | United States | Advanced EAF steelmaking | Proved EAF viability for high-end steel markets | |
Advanced Automotive EAF Rollout | Nucor | United States | High-grade EAF steel production | Automotive OEM-grade supply scale-up Nucor supplies steel for vehicle manufacturing, with General Motors (GM) named as their first customer for 'Econiq' NZ carbon steel. | Commercial adoption by automotive sector. Attracts companies seeking sustainable, LEED-certified building materials. |
H2FUTURE Electrolysis Pilot | Voestalpine | Austria | Green hydrogen production for steelmaking | Industrial-scale hydrogen testing with grid integration | |
SALCOS Programme | Salzgitter AG | Germany | Hydrogen DRI + EAF + Renewable PPAs | Integrated hydrogen and power sourcing strategy. As an important component of SALCOS®, Salzgitter is currently constructing a 100 MW electrolysis plant on the factory premises. | |
HyREX Demonstration Design | POSCO | South Korea | Hydrogen reduction technology | Indigenous hydrogen-based ironmaking technology innovation | |
Low-Carbon EAF and CCS Studies | ENEOS Corporation + JFE Steel Corporation | Japan | EAF expansion + hydrogen/CCS feasibility | Structured capital deployment toward transition technologies. |
Future of CBAM and global impact
As climate policies evolve, carbon trade regulations like CBAM are expected to become more integrated. They represent a shift towards adding environmental costs into global trade, thus, promoting sustainable development.
Potential future developments include:
Expansion to more sectors: By 2028, the CBAM scope will widen to downstream sector goods such as automotive parts, refrigerators, washing machines etc.
Adoption of regional Emissions Trading Systems: One example is India's emerging CCTS mechanism.
Innovation: In financing instruments as well as the low-carbon technologies they are investing into.
Enhanced transparency: Improved tracking and reporting of facility and product level emissions with AI going to play a big role in this space. Verification and third party assurance services will pick up demand as CBAM timeline matures.
Businesses that adapt early will benefit from reduced risks and new opportunities while maintaining competitiveness in international markets.
Verdantika continues to closely track latest developments in supply chain decarbonization and advanced technology space, hence, companies are welcome to engage with us for any technical and strategic CBAM accounting or pre-verification / assurance related support.
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