The European Union (EU) has moved to broaden the scope of the Carbon Border Adjustment Mechanism (CBAM) after a draft proposal from the European Parliament’s Committee on the Environment, Climate and Food Safety (ENVI) recommended charging CBAM levies on 180 additional steel- and aluminium-based products from January one, 2028. The committee set out an intent to extend the mechanism beyond raw materials to a wider range of manufactured goods. The draft was issued on April 10 and awaits plenary approval.

If the European Parliament approves the measure, exporters to the EU would face higher compliance costs and altered market dynamics, with direct implications for firms in India seeking market access under a freshly negotiated free trade agreement expected by the end of this calendar year. The proposal arrives amid intensifying trade discussions between India and the EU, where CBAM has been a prominent point of contention. Observers note that the charge will function as a climate-linked trade barrier for exposed sectors.

Engineering exports from India that could be affected include auto components, machinery, fabricated metal products, pipes, fasteners and aluminium-based goods. Think tank GTRI warned that most industrial products entering the EU could face carbon tax exposure by 2030. Manufacturers that rely on scrap-based steel production or recycled aluminium have so far enjoyed a cost advantage that may be eroded by revised accounting rules.

The draft also proposes tighter carbon accounting that would include emissions from pre-consumer scrap and is examining the inclusion of indirect emissions from electricity use. Such changes could significantly increase compliance burdens for producers dependent on coal-based power and raise the cost of exports to the EU. Businesses and policymakers in India may need to accelerate decarbonisation measures and prepare for heightened monitoring and verification requirements should the measure be adopted.