Carbon Border Adjustment Mechanism (CBAM)

The Carbon Border Adjustment Mechanism is a trade policy tool that puts a carbon price on imports of certain goods from countries that do not have equivalent carbon pricing. The EU introduced CBAM in 2023, initially covering cement, steel, aluminium, fertilisers, electricity, and hydrogen.

The carbon-leakage problem

When a country prices carbon, domestic producers face higher costs. Competitors from countries without carbon pricing can undercut them on price, and production can shift abroad — "leaking" emissions to uncovered regions without reducing global totals. CBAM is designed to level this playing field.

How EU CBAM works

1. Importers buy CBAM certificates proportional to the embedded carbon in their imports.
2. The certificate price tracks the EU ETS carbon price.
3. If the exporting country has its own carbon price, importers can deduct an equivalent amount.

Implications for Indian exporters

Several CBAM-covered sectors overlap with India CCTS sectors (cement, aluminium). Indian firms exporting to the EU face scrutiny of their actual emissions intensity. Firms with lower intensity pay less CBAM; firms with higher intensity pay more.

This creates a direct financial incentive for Indian exporters to reduce their emissions intensity — even before India's own CCTS is fully operational.

In the simulator

When CBAM informational display is enabled, you will see an estimated CBAM liability for each firm based on its EU export share and current EU carbon price. This is informational only in Phase 1 of the simulator.