The European Union's Carbon Border Adjustment Mechanism (CBAM) is set to affect Indian exports, especially in sectors like steel, aluminium, and other high-emission industries, according to Thomas Kerr, lead climate change specialist at the World Bank, speaking on February 27.
Kerr emphasized that the CBAM calls for urgent action in domestic carbon markets, as India's carbon market is not isolated, and global carbon pricing policies will affect the country’s industries. Businesses must prepare for these shifts, he added.
The CBAM will come into effect on January 1, 2026, after a transition period starting in October 2023. It will cover sectors such as iron and steel, aluminium, cement, fertilizer, and electricity, and will require the purchase of CBAM certificates to report the direct and indirect carbon emissions of these goods. This measure could significantly impact the competitiveness of developing countries that mainly export these goods to the EU.
The Relative CBAM Exposure Index, created by the World Bank, identifies countries with high exposure to the EU's CBAM by considering carbon emissions intensity and exports of CBAM products to the EU. Using an assumed carbon price of $100 per metric ton, the index measures the additional cost of CBAM certificates for exporters compared to the average EU producer, adjusted by the proportion of exports to the EU market.
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