The European Parliament’s Committee on the Environment, Climate and Food Safety (ENVI) has proposed some changes to European Union’s Carbon Border Adjustment Mechanism (CBAM) policy to bring more carbon-intensive products that get imported to the European Union under its carbon tax net. Once accepted, several Indian goods could face increased CBAM levies even though the soon-to-be enforced EU-India Free Trade Agreement (FTA) will lower tariffs on the imports of such goods to the EU, experts say.

The proposals contained in a draft report released by ENVI Committee on April 10 want around 180 additional steel- and aluminium-based manufactured products to be covered under CBAM from 1 January 2028. It calls for the tightening of carbon accounting rules for scrap-based production by including emissions from pre-consumer scrap, rejecting the use of international carbon credits for CBAM compliance, examining expansion of CBAM to indirect emissions from electricity use across more sectors and introducing stricter anti-circumvention, reporting and verification requirements for suspected misuse.

“Together, these steps would turn CBAM from a tax mainly on steel and aluminium raw materials into a much wider carbon tax covering manufactured industrial goods”, says Ajay Srivastava, founder, Global Trade Research Initiative (GTRI). “The proposed expansion would bring many new products under CBAM, including fabricated metal products, tubes, pipes, fasteners, structural components, machinery parts, aluminium containers, and other semi-finished and finished engineering goods. The EU has not yet published HS-code-wise product details, but the proposal shows that CBAM is moving deeper into the manufacturing value chain”, he adds.

At present, CBAM applies to imports of iron and steel, aluminium, cement, fertilisers, hydrogen, electricity, and selected steel/aluminium products. The European Parliament has also asked the European Commission to study future inclusion of organic chemicals, polymers, and selected scrap materials, indicating that CBAM may gradually expand across most industrial manufacturing sectors.

According to GTRI analysis, Indian industry should no longer view CBAM as a regulation affecting only steel and aluminium. “From January 2028, Indian exporters of engineering goods, auto components, fabricated metal products, machinery, aluminium manufactures, and other industrial goods may increasingly face CBAM tax when exporting to Europe. By 2030, most industrial products entering the EU could potentially face some form of carbon tax exposure”, Srivastava says.

Meanwhile, EU states that the EU-India FTA, the talks on which got concluded  early this year, includes dedicated provisions on the protection and management of natural resources, setting market access commitments that will make trade and investment in low-carbon goods, services, and technology easier. This includes reducing tariffs on green goods and liberalising services sectors of relevance for the green transition. Following the finalisation of EU-India FTA, India had stated that through CBAM provisions, commitments have been secured including a forward-looking most-favoured nation assurance extending flexibilities if any granted to third countries under the regulation, enhanced technical cooperation on recognition of carbon prices, recognition of verifiers, as well as financial assistance and targeted support to reduce greenhouse gas emissions and comply with emerging carbon requirements.

The implications of the proposal to expand the scope of CBAM to include more imported goods will become clear only after India-EU FTA comes into force towards the end of this year.