The European Union's Carbon Border Adjustment Mechanism (CBAM) imposes a carbon price on specific imports to combat carbon leakage and promote greener practices. However, this initiative could burden industries in developing economies, including India, by increasing operational and financial costs. The mechanism, part of the EU's Green Deal, is slated to take effect in 2026 and may impose an additional levy on carbon-intensive goods exported from India. This additional cost underscores the economic challenges CBAM regulations pose for Indian industries, particularly MSMEs.

Internal disagreements within the EU—citing concerns from Poland, France, and Germany—present an opportunity for India to advocate for changes to CBAM requirements. India plans to leverage these divisions in upcoming trade discussions and at the World Trade Organization’s 14th Ministerial Conference. Among the key issues raised are protecting exporters' commercial confidentiality, reducing compliance complexities, and seeking extended timelines for MSMEs to adapt. While some EU members, like Poland, have challenged CBAM on economic grounds, others, including France, have expressed reservations about its administrative burden, further spotlighting the regulation’s contentious nature.

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