The Council of the European Union has taken a significant step to tighten the Carbon Border Adjustment Mechanism (CBAM), expanding its scope to cover more products and introducing strict anti-circumvention rules. This move, reached during the Economic and Financial Affairs Council (ECOFIN) meeting in Luxembourg, is expected to have major implications for India's export sectors, particularly steel and aluminium.
Expansion of CBAM Coverage
Initially focused on raw materials such as iron, steel, aluminium, cement, and fertilizers, the updated CBAM regulation now extends to over 180 additional processed goods. This expansion aims to close loopholes and prevent carbon leakage, where carbon-intensive production shifts to countries with less stringent climate policies.
Anti-Circumvention Measures
The Council introduced a new anti-circumvention framework to prevent exporters from bypassing the carbon tax by slightly modifying products or rerouting trade through third countries. Temporary exemptions may be granted only under exceptional circumstances. EU Finance Ministers emphasized that these steps are necessary to ensure a level playing field for European producers who already pay high carbon prices under the EU Emissions Trading System (ETS).
Impact on India
India is one of the largest exporters of steel and aluminium to the EU, and the strengthened CBAM is expected to affect manufacturers in these sectors. The mechanism ensures that imported products face the same carbon costs as goods produced within the EU, encouraging cleaner industrial production in non-EU countries.
Next Steps
The Council's decision sets the stage for negotiations with the European Parliament later this year to finalize the legal text. Makis Keravnos, Minister of Finance of Cyprus, which holds the rotating presidency of the Council until June 2026, stated: "The EU remains committed to reducing climate emissions both within the Union and globally. Strengthening the CBAM and closing loopholes that can circumvent our rules is a key part in fulfilling that goal."
