A CII-IIM Ahmedabad report urges India to strengthen carbon pricing and emissions tracking to shield exporters from the EU's Carbon Border Adjustment Mechanism (CBAM), which will require accounting for embedded emissions from 2026.
India needs to strengthen carbon pricing and emissions tracking systems to protect the competitiveness of its exporters as the European Union's Carbon Border Adjustment Mechanism (CBAM) enters its definitive phase, according to a joint report by the Confederation of Indian Industry (CII) and IIM Ahmedabad.
The report said a credible domestic carbon-pricing system, backed by robust measurement, reporting and verification (MRV) mechanisms, will become increasingly important for Indian industries exporting carbon-intensive products to the European market.
"A well-designed domestic registry, robust MRV, and a transparent carbon-pricing layer are essential to generate an auditable, entity-level record of carbon costs paid, ensuring Indian exporters can claim valid deductions and protect their international competitiveness," the report said.
EU's Carbon Border Adjustment Mechanism (CBAM)
The EU's CBAM entered its definitive phase on January 1, 2026, under which exporters of carbon-intensive goods have to account for the embedded emissions in their products.
The report said this makes the ability to accurately measure and document emissions increasingly important for Indian companies seeking to remain competitive in global markets.
Impact on Key Sectors and Rules
The report identified steel, cement, aluminium, fertilisers, refining and petrochemicals among the trade-exposed sectors for which the carbon price signal is becoming particularly important.
Under CBAM rules, the report noted, a domestic carbon price paid by an exporter is not automatically deducted from the carbon cost applicable under the EU mechanism.
The carbon cost has to have been effectively paid and adequately evidenced, while also accounting for free allocations or rebates.
This makes the development of a reliable domestic system for recording carbon costs important for Indian exporters, particularly as they face increasing requirements to demonstrate the emissions associated with their products.
Recommendations for India's Carbon Market
The report also stressed that India's carbon market needs strong measurement and verification standards.
It said facility-level emissions data should be independently verified so that each Carbon Credit Certificate represents a genuine and permanent reduction in emissions.
Target Setting and Market Design
The report said India should also establish transparent and progressively stringent emissions-intensity targets for covered sectors.
If targets are set too loosely, it could lead to an oversupply of carbon certificates, suppressing carbon prices and weakening incentives for industries to reduce emissions.
At the same time, the report argued that India should retain an emissions-intensity-based baseline-and-credit approach rather than immediately imposing an absolute cap on emissions.
Such a framework, it said, would allow industrial production to continue expanding while creating an economic incentive for companies to improve their carbon efficiency.
"An emissions-intensity-based design allows industrial production to grow to meet national development objectives while placing an economic penalty on weaker emissions performance and rewarding superior carbon efficiency," the report said.
Towards an Integrated Sustainability Framework
The report's broader recommendation is to build an integrated sustainability framework linking sustainability definitions, corporate reporting, carbon pricing, financing and implementation.
(ANI)
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