As of last week, January 1, 2026, the European Union’s Carbon Border Adjustment Mechanism (CBAM) officially shed its training wheels.
What was once a two-year exercise in data collection has transformed into a high-stakes financial reality. However, as the definitive phase begins, the view from Brussels looks very different from the view in New Delhi, Beijing, or Tokyo.
CBAM has now turned quarterly emissions reporting into a direct carbon cost on imports. For high-intensity products such as steel, aluminum, and cement, levy estimates range from 40 to 90 EUR per ton of embedded CO₂. For the EU, this is a new revenue stream expected to raise billions by 2030.
While the 2025 Omnibus Simplification Package is presented in Brussels as an administrative win—offering fewer forms and clearer default values—for India, the picture is grimmer. The EU accounts for 15–20% of Indian exports in sectors like steel and engineering; exporters now face costs that could erode margins by 3–8%, even as they rush to invest in supply-chain decarbonization.
The year of the Omnibus:
The 2025 Omnibus was the EU’s attempt to prevent a bureaucratic meltdown. By replacing the tiny €150 consignment threshold with a 50-ton annual mass-based exemption, the EU cleared the desk for 90% of its smallest importers.
However, for India’s industrial titans, this is minor consolation. According to the Global Trade Research Initiative (GTRI), Indian steel and aluminum exports to the EU have already slid from nearly $7.7 billion to $5.82 billion as buyers de-risk. GTRI warns that Indian firms may have to cut prices by 15–22% just to remain competitive, effectively absorbing the EU’s carbon tax into their own shrinking margins.
China and Japan’s Gambit:
India is not alone in this reckoning. China and Japan, the world’s largest steel producers, are adopting distinct strategies to shield their industries.
China’s Counter-Strike: Beijing has branded CBAM unfair and discriminatory. While publicly threatening WTO challenges, China is quietly expanding its own National Emissions Trading System (ETS) to include steel, hoping to keep carbon revenue within its borders rather than surrendering it to Brussels.
Japan’s Technical Pivot: Japan is moving toward a mandatory GX-ETS (Green Transformation) system in 2026. Rather than just protesting, Japanese firms are positioning themselves as the low-carbon elite, utilizing their lead in hydrogen-based steelmaking and scrap-based electric arc furnaces (EAF) to capture the premium EU market that can no longer afford dirty steel.
The technological divide:
The implementation highlights a stark mathematical reality: 2.5 tons. That is the average CO₂ emission for a tonne of Indian steel produced via coal-heavy blast furnaces—nearly double the EU average of 1.0. The shift toward mandatory verification marks a new era. While the first verified annual declaration isn’t due until September 30, 2027, the pressure to move away from default values is immediate. If Indian exporters fail to provide plant-level data verified by EU-recognized auditors, authorities will apply default values set at the highest emission levels—often 30–80% higher than actual emissions.
The FTA bridge and the CCTS shield:
The timing is politically charged. India is in the final mile of FTA negotiations with the EU, with a potential breakthrough expected by the January 26 Republic Day summit. Simultaneously, India is refining its Carbon Credit Trading Scheme (CCTS). Under CBAM rules, an importer can deduct the carbon price paid in the country of origin. However, a gap remains: while the EU ETS price hovers near €80–€90, India’s initial carbon prices will likely be lower, leaving exporters to pay the difference at the EU border.
The bottom line:
The Omnibus Regulation offered one crucial pressure valve: the postponement of certificate surrender to February 2027. While the financial liability began last week, the actual cash won’t leave accounts for 13 months. This creates a year of shadow pricing, where every 2026 shipment is a legal liability that must be accounted for on balance sheets today.
As we move through 2026, the success of CBAM will be measured by whether the EU can pivot from being a carbon policeman to a transition partner. Without a bridge for the Global South, this green tariff may succeed in lowering emissions only by destroying the very trade that funds the transition.
Our take:
CBAM is a bold experiment, but without a bridge for the Global South, the green tariff will succeed in lowering emissions only by destroying the trade that funds the transition. For 2026, the question is simple: Will this be the year we fund the green revolution, or just the year we tax the old one?
