CBAM exemption may not offer much relief to Indian steel MSMEs: Experts

50-tonne threshold seen as too low to ease burden; experts call for green transition or market diversification

The European Union’s (EU’s) decision to exempt small traders from its Carbon Border Adjustment Mechanism (CBAM) got a boost with the European Parliament and Council reaching an agreement in June. However, it may not yield significant benefit for the Indian micro, small and medium enterprises (MSME) sector, say industry experts.

 

The exemption, first proposed by the European Commission in February, introduces a threshold of 50 tonnes per annum for CBAM’s implementation. On June 18, it was announced that the European Parliament and Council had reached an agreement.

 

It must now formally adopt the package before it can come into force – which is 20 days after its publication in the Official Journal of the European Union.

 

The CBAM, which will fully take effect on January 1, 2026, is a climate policy that imposes a tax on imports of carbon-intensive goods like steel, aluminum, and cement. 

 

By aligning the carbon cost of imported goods with those produced within the EU, CBAM aims to prevent carbon leakage — a scenario where industries relocate to countries with lenient climate rules or are undercut by cheaper, high-emission imports.

 

The EU claims that this exemption will keep “99 per cent of emissions still in the CBAM scope, while exempting around 90 per cent of the importers”.

 

According to data by Big Mint, a research firm, in 2023-24 (FY24) and FY25, India exported 4.48 million tonnes (mnt) and 2.48 mnt of steel (including stainless steel) to the EU, respectively.

 

However, Indian steel MSMEs will mostly fall outside this threshold, pointed out industry experts.

 

This is a technical exemption only, remarked Adhip Mitra, executive director and secretary, Engineering Exports Promotion Council, an advisory body for trade and investment promotion.

 

“They have done so from the perspective of their importers. But the 50-tonne limit is too small to be of much help,” he said. “If it was 500 tonnes, it could have been useful because there are some MSME units that export around 400-500 tonnes of steel to the EU.”

 

Mitra added that few small companies could gain from it, and those small companies usually don’t do business with the EU for these products.

 

Aditya Garodia, director, Corona Industries, a Kolkata-based steel producing company, too said that the 50-tonne threshold was too small to make a real difference. “It effectively does not cover even one per cent of the industry,” he said.

 

The EU has been a major market for India’s steel exports, accounting for 47 per cent and 36 per cent of total steel shipments in FY24 and FY25, respectively, BigMint data shows. 

 

According to a report by the Foundation of European Progressive Studies, a Brussels-based think tank, with 100 per cent of CBAM implementation – when free allowances in the EU will be phased out – Indian steel will have an added duty of 173.8 euros per tonne, putting domestic exporters at a competitive disadvantage against European producers.

 

Ajay Srivastava, founder, Global Trade Research Initiative (GTRI), a research group focusing on climate change, technology and trade, believes that once CBAM is fully implemented, MSME steel export to the EU will gradually slip before totally stopping.

 

“Not only tariff, but the compliance process is also very tough. Since MSMEs buy raw steel and manufacture finished products for export, they are unlikely to get data of raw steel required for EU compliance, resulting in the highest tariff,” explained Srivastava.

 

Currently in the transitional learning phase, CBAM’s emission reporting requirements, along with declining country-specific tariff rate quota for India, have contributed to a 24.4 per cent drop in India’s steel and aluminium exports to the bloc, from $7.71 billion to $5.82 billion between FY24 and FY25, according to a GTRI report.

 

Experts suggest a transition to greener steel and market diversification to tackle this. “To keep up with the export number, either we have to upgrade towards a greener steel so that we retain our EU market or we have to diversify our market and look for other exporting countries,” said Mitra.

 

However, Garodia pointed out, “Even if we look for market diversification, there is not much scope as US tariffs present another challenge. Seeing CBAM, other countries will also look to bring something similar.”

 

Srivastava said that India should definitely include CBAM in the free trade agreement, otherwise it may be at the losing end of the agreement.

 

“With the world market gradually becoming closed, MSMEs should be allowed to focus on domestic markets because some of our policy favours large players at the detriment of MSMEs,” he added.