The EU’s Carbon Border Adjustment Mechanism could cost India’s steel exporters far less than the headline estimates that have dominated the trade debate. A report released on 4 August by climate think tank Sandbag models the sector’s CBAM fees in 2034 at EUR 762 million under a business-as-usual scenario, but at EUR 407 million under what it considers a more realistic “expected” scenario, in which exporters redirect their existing low-carbon output toward Europe. For importers, steel traders, and industrial buyers, the finding reframes CBAM exposure as a manageable cost allocation problem rather than an existential trade barrier.
What Sandbag’s Modelling Found
CBAM, which entered its definitive phase in January 2026, requires importers to pay for the carbon emitted in producing goods such as steel and cement. By 2034, when the phase-out of free allowances for CBAM-covered sectors under the EU ETS is complete, the mechanism will apply at full strength, which is why Sandbag models that year.
The business-as-usual figure of EUR 762 million assumes India’s diverse steel industry is uniformly carbon-intensive. Sandbag argues this is too simplistic. Under its expected scenario, exporters shift their lower-carbon production toward the EU market, cutting gross fees to EUR 407 million in 2034, roughly half the blanket estimate.
“India’s steel industry has the know-how and scale to absorb the impact of CBAM, if suppliers react appropriately,” said Adrien Assous, Sandbag’s executive director.
The Gap Between the Two Scenarios Is the Real Story
The EUR 355 million difference between the two scenarios is not a modelling quirk. It measures the commercial value of a specific strategy: sorting output by carbon intensity and allocating the cleanest tonnes to Europe. Indian steelmaking spans a wide range of emission intensities across plants and production routes, and CBAM charges on embedded emissions make that spread directly monetisable.
That logic is already visible in trade flows. Indian steel exports to the EU fell 35.1 percent to USD 3.05 billion in FY25, according to an EY analysis, as the market began pricing the coming carbon cost. Other estimates underline the stakes for individual mills: BCG analysis cited by CO2 AI puts the potential cost increase for Indian steel exporters at 32 percent, the steepest globally, for producers that fail to adapt. The Sandbag finding and the BCG figure are two sides of the same coin. CBAM is a sharp cost for high-carbon supply and a much smaller one for producers able to document low embedded emissions.
Why the Cheaper Scenario Is Not Automatic
Sandbag’s expected scenario depends on behaviour, not physics. Three conditions have to hold. First, exporters need verified installation-level emissions data, because importers who cannot document actual embedded emissions are charged on punitive default values. Second, producers need commercial incentives to reserve low-carbon output for the EU rather than selling it into markets that do not pay a green premium. Third, the domestic policy environment matters: the credibility of India’s own carbon pricing architecture, built around the Carbon Credit Trading Scheme, will shape how much of the carbon cost is recognised as already paid at home and deducted from the CBAM bill.
This is also where the Indian debate connects to a wider exporter story. From Egypt’s steel, cement, and fertiliser producers to other emerging-market suppliers, the operational challenge is the same: measure emissions at installation level, finance cleaner production, and build the legal framework that protects access to the EU market.
The Political Backdrop Has Not Changed
The Sandbag report does not settle the diplomatic fight. India has repeatedly challenged CBAM at the World Trade Organization, and in 2021 it joined Brazil, China, and South Africa in calling the mechanism discriminatory. New Delhi’s position has been that the border charge shifts the cost of Europe’s decarbonisation onto developing economies.
What the new modelling does is narrow the economic gap underlying that dispute. If the realistic bill for the most exposed Indian sector is closer to EUR 400 million than to the multi-billion figures circulating in trade rhetoric, the commercial case for adaptation strengthens relative to the case for confrontation. For EU policymakers, that is a useful data point as border carbon adjustments spread: the IISD’s State of Border Carbon Adjustments 2026 report tracks a growing number of jurisdictions considering similar instruments.
What Buyers and Exporters Should Watch
Three signals will show which scenario is materialising. First, Indian mills’ investment in installation-level MRV systems: without verified emissions data, the default-value penalty makes the expensive scenario self-fulfilling. Second, the product mix of India’s steel exports to the EU over the next two to three years: a shift toward lower-intensity products would confirm the reallocation strategy is underway. Third, the interplay between CBAM and India’s domestic carbon pricing: any mechanism that lets exporters deduct a domestically paid carbon price from the EU charge directly reduces the net fee.
For European importers, the practical takeaway is that supplier selection now doubles as carbon cost management. For Indian producers, Sandbag’s numbers quantify the premium on credible emissions data and low-carbon capacity. For the broader market, the report is an early test of whether CBAM functions as intended: not as a wall, but as a price signal that rewards the cleanest steel wherever it is made.
