Representative image. Source Freepik

With the European Union implementing its Carbon Border Adjustment Mechanism (CBAM) this year, steel producers globally are assessing how the policy could reshape trade flows, emissions reporting, and raw material strategies. For India, the implications extend beyond exports to Europe, potentially accelerating the shift toward scrap-based steelmaking and more transparent supply chains.

Sharing his perspective, Jai Saraf, Chairman of Evonith Steel, says that the scheme effectively converts carbon intensity into a trade cost, tightening margins for Indian steel exports to Europe rather than shutting markets outright. According to him, this will mainly affect the larger port-based players in the country who have immense volumes to evacuate. In the near term, higher-emission BF–BOF steel will face pricing pressure, while buyers increasingly favour suppliers with verified, lower embedded emissions. Over the medium term, emissions data and transparency will become commercial differentiators across global supply chains. Nonetheless, he notes that India is a net importer of steel and will continue to remain so for the near future.

Scrap to become a strategic input

Saraf adds that for the domestic ferrous scrap market, CBAM strengthens the case for scrap-based steelmaking as a fast, cost-effective decarbonisation lever. Demand for quality, segregated, and traceable scrap is expected to rise, highlighting current supply constraints but also catalysing investment in organised recycling and the circular economy.

He emphasises that higher use of ferrous scrap will be the most critical and immediate lever for Indian steelmakers seeking to lower their carbon footprint under CBAM, noting that Evonith Steel has already been working in this direction since 2021.

Scrap-based steelmaking can deliver substantial emissions reductions compared to coal-based routes without the long lead times, unproven nature, and capital intensity of breakthrough technologies.

Under CBAM, this makes scrap not just an environmental input but a commercially strategic one. However, its effectiveness will depend on access to consistent, high-quality, and traceable scrap. As a result, increasing scrap use will go hand in hand with investment in organised collection, processing, and certification, making circularity central to India’s most impactful and economically viable decarbonisation pathway.

Over time, access to reliable, high-quality, and certified scrap will become a strategic advantage, reshaping sourcing decisions and reinforcing investment in organised recycling and circular supply chains — something that Evonith Steel already has on its radar.

However, he points out that steel intensity in India has not yet reached the key levels required and could take a few decades before the domestic steel recycling cycle fully evolves.

Commenting on India’s preparedness, Saraf says the country is only partially ready to support lower-carbon steel production at scale through scrap. While availability is improving, the scrap ecosystem remains fragmented, with gaps in quality consistency, processing capability, and traceability. Much of the material is still sourced through informal channels, which limits its usability for high-quality steel and for verified emissions reporting under mechanisms such as CBAM. Moreover, he notes that it will take time for the steel cycle in India to evolve sufficiently to begin generating the volumes of scrap required by the industry.

At the same time, Saraf points out that this challenge represents a major opportunity. With targeted investment in organised collection systems, modern shredding and processing facilities, and certification mechanisms, India can rapidly strengthen its scrap supply chain. Given the country’s strong steel demand growth, he believes building this infrastructure is both achievable and one of the most impactful decarbonisation pathways available.

On Evonith Steel’s positioning, Saraf states that the company is relatively well placed as its strategy is primarily focused on India’s domestic market, limiting near-term direct exposure to CBAM-related costs. At the same time, the company has already taken early steps toward emissions transparency through its Sustainability and ESG reporting, providing a solid foundation for future product-level carbon disclosures if required.

Strategically, he noted that Evonith recognises CBAM as less about compliance and more about long-term competitiveness.

By focusing on operational efficiency, increasing the role of recycling and scrap where feasible, waste heat recovery, renewable energy, and strengthening data and traceability systems, the company is aligning sustainability goals with business impact — consistent with India’s role as the world’s key steel growth market.

Looking ahead to the next two to three years, Saraf said the priority for Indian steelmakers and scrap market participants should be practical readiness rather than wholesale technology shifts, while maintaining focus on the actual domestic requirement. This would involve building robust emissions measurement, reporting, and verification systems aligned with recognised international standards.

At the same time, he stressed the need to increase investment in scrap usage and circularity — from organised collection and processing to traceability and delivery — as this offers the fastest and most cost-effective route to emissions reductions. Finally, where possible, primarily in export-driven contexts, carbon considerations should be embedded into commercial and sourcing decisions, not just within sustainability functions. These steps, he believes, would allow Indian producers to remain globally competitive while supporting India’s growth-led steel story.

Carbon accounting: A major pressure point for exporters

Explaining the calculation behind the costs, Nilesh Bhattad, founder and CEO of CleanCarbon.ai, says that a key challenge for Indian producers is the emissions profile of the dominant blast furnace route. Bhattad notes that large Indian steelmakers typically emit 2.2–2.5 tonnes of CO₂ per tonne of steel, compared with the EU benchmark of roughly 1.37 tonnes. “That difference can translate into around €80 per tonne in carbon costs at current prices,” he explains.

The impact becomes even more pronounced further down the value chain. When steel is processed into components such as fasteners or pipes, emissions accumulate across multiple stages. Bhattad estimates that embedded emissions in finished products can reach around 3.2 tonnes per tonne of output. The challenge intensifies when exporters cannot obtain verified emissions data from suppliers.

“If companies don’t have actual emissions data from suppliers, they are forced to use default values,” he says. “Those numbers can go as high as six tonnes of CO₂ per tonne, which significantly inflates the reported footprint.”

This creates a substantial cost burden, particularly for smaller exporters. For companies shipping around 1,000 tonnes annually, Bhattad notes that additional carbon-related costs could reach about ₹20,000 per tonne, making exports far less competitive.

CBAM’s reach also extends beyond direct exporters. Bhattad points out that while India has roughly 4,000 direct exporters to Europe, an estimated 25,000–28,000 companies act as secondary suppliers within those export supply chains. “Even if a company is not exporting directly, it can still be part of the European supply chain and will eventually need to report its emissions,” he says. As a result, large exporters and OEMs are increasingly scrutinising the carbon footprints of domestic suppliers.

Within this evolving regulatory landscape, scrap-based steelmaking is gaining renewed attention. Steel produced using scrap in electric arc furnaces can generate around 1–1.2 tonnes of CO₂ per tonne of steel, significantly lower than emissions from the blast furnace route.

However, Bhattad notes that CBAM rules now differentiate between types of scrap. “The biggest advantage applies to post-consumer scrap,” he explains. “Industrial scrap like factory cuttings does not receive the same treatment.”

Proving the origin of post-consumer scrap is also emerging as a new challenge. “Companies will have to show the entire lifecycle of the scrap—where it came from and how it entered the recycling chain,” Bhattad says. In markets where scrap moves through fragmented collection networks, establishing such traceability will require new systems and processes.

Risk of market share loss

If carbon costs are passed through to final prices, Indian exports may become less competitive in Europe. Countries with lower-carbon production methods—particularly those relying more heavily on electric arc furnaces (EAFs)—could gain an advantage.

These include mills in Turkey, Korea, or Ukraine, where scrap-based steelmaking is more prevalent, which may be able to supply steel with significantly lower embedded emissions and therefore lower CBAM-related costs.

In the short term, this could result in reduced profitability for Indian exporters or a potential loss of market share in Europe.

Although comprehensive trade data is not yet available, industry experts see a strong possibility of these trends emerging if Indian producers do not adapt quickly, states Bhattad.

A challenge for MSMEs

CBAM is creating significant compliance pressure on Indian MSMEs, either directly or through supply chains, according to CBAM expert Shubham Thakur. “For companies that have exported to Europe for years, the pressure is particularly severe, as wrong, untimely, or inaccurate emissions reporting can lead to inflated carbon costs, penalties, shipment delays, loss of EU buyers, and limited market expansion—making CBAM a major challenge to maintaining export competitiveness,” he says.

Adding to this, Dr. Manuj Bhardwaj, President of the Emissions Trading Association of India, notes, “CBAM requires exporters of carbon-intensive goods such as steel to report and verify embedded carbon emissions and eventually pay a carbon price equivalent to EU producers. For the Indian industry, the biggest pressure lies in supply-chain compliance. Large steel exporters will now require carbon data, traceability, and verified emissions reporting from their MSME suppliers. Most MSMEs currently lack carbon accounting systems, ESG reporting capacity, and the resources for third-party verification. Without policy support and green financing, CBAM could accelerate consolidation in supply chains, favouring larger, better-capitalised firms.”

He adds that if exports to Europe become less competitive due to CBAM costs, Indian steel producers are likely to diversify towards high-growth infrastructure markets.

According to Dr. Bhardwaj, potential export destinations include Southeast Asian countries such as Vietnam, Indonesia, and the Philippines; Middle Eastern markets like Saudi Arabia and the United Arab Emirates, driven by large infrastructure projects; and African economies such as Kenya and Nigeria, where construction demand is rising. At the same time, strong domestic demand, supported by programmes like the National Infrastructure Pipeline, could partially absorb production. “In the long term, however, the sustainable solution is decarbonisation—developing low-carbon or green steel to remain competitive in regulated markets such as the EU,” he says.