EU carbon levy may tilt steel trade away from India: Kuehne + Nagel's exec

In worst-case scenario, European importers could shift towards China, says Kuehne + Nagel's exec

The European Union’s Carbon Border Adjustment Mechanism (CBAM) -- which comes into effect at the beginning of next year -- could significantly affect India’s steel export in the long term as rising costs and emission rules may render Indian exports less competitive, Marc Bernitt, senior vice-president of Customs, EMEA & Asia Pacific at logistics giant Kuehne + Nagel, told Business Standard.

 

“In the worst case, European importers could even shift to China or other countries that can supply lower-emission products at competitive prices,” Bernitt said in an interaction.

 

He said the CBAM -- a carbon tariff on imports of emission-intensive goods -- would sharply raise costs for buyers.

 

“For crude steel, importers could see average price increases of about 15 per cent from 2026, rising to 51 per cent by 2034. For aluminium, the increase could start around 6 per cent and reach 70 per cent by 2034,” he said.

 

CBAM is the EU’s proposed carbon tariff on imports of emission-intensive goods. It is designed to ensure that foreign producers face the same carbon costs as EU manufacturers. Introduced in October 2023 as part of the bloc’s plan to become carbon-neutral by 2050, with a 55 per cent emission-reduction target by 2030, it will require importers to register as CBAM declarants, obtain licences, and report embedded emissions in imported goods from 2026.

 

Bernitt said procurement decisions in Europe are increasingly guided by emission intensity.

 

“A supplier that delivers the right quality and price but has high emissions may lose business to a cleaner competitor,” he said, adding that India must invest quickly in cleaner production technologies.

 

The European Commission is further tightening trade access. On October 7, 2025, it proposed capping tariff-free steel imports at 18.3 million tonnes annually, a 47 per cent cut from 2024 levels, and doubling the out-of-quota duty to 50 per cent.

 

Experts say the European Union remains a key export destination, accounting for 32-45 per cent of India’s annual steel exports, largely comprising value-added products such as cold-rolled coils, galvanised and alloy steel.

 

“Any material disruption in this trade could weigh on the profitability of domestic primary steel producers, given the superior export realisation,” said Sumit Jhunjhunwala, vice-president and sector head, Corporate Sector Ratings at ICRA.

 

He added that with CBAM taking effect in January 2026, Indian exporters face an emerging cost challenge.

 

“The relatively higher emission intensity of the domestic blast furnace-BOF route, at around 2.2 tonnes of CO₂ per tonne of steel compared to the EU benchmark of 1.44 tonnes, could significantly impact export competitiveness,” Jhunjhunwala said.

 

“Initial estimates suggest a potential cost of around $60 per tonne, which could rise to $150–160 per tonne by FY34 as free allowances are phased out,” he said.

 

In a report, ICRA noted that 75 per cent of EU steel imports come from Turkey, South Korea, India, Vietnam, Taiwan, China, Ukraine and Japan, all of which could face tighter shipment limits.

 

The agency also warned that about 12 million tonnes of Asian steel (excluding India) now heading to the EU could be diverted to alternative markets, including India, increasing import competition and pressuring domestic prices.

 

Bernitt cautioned that CBAM would not remain limited to a few sectors.

 

“By 2034-35, it’s expected to cover all industrial goods. Even if you’re not affected today, you could be tomorrow,” he said.