Indian micro, small, and medium enterprises (MSMEs) are facing a significant hurdle with the European Union's impending Carbon Border Adjustment Mechanism (CBAM). This carbon tax, set to impact a wide range of industrial products, has prompted Indian MSMEs to seek government intervention for greater access to green energy.
The Global Trade Research Initiative (GTRI), a prominent trade think tank, estimates that by 2030, most industrial products entering the EU could be subject to some form of carbon taxation. Specifically, the EU plans to impose the CBAM tax on 180 new steel and aluminium-based products starting January 2028, directly affecting Indian manufacturers and exporters in these sectors and beyond.
The Challenge of Grid Dependence and Data Gaps
Anil Bhardwaj, Secretary General of the Federation of Indian Micro Small & Medium Enterprises (FISME), highlighted the critical challenge for MSMEs: their heavy reliance on the national grid, where coal-based thermal power accounts for 80-85% of the supply. This contrasts sharply with large industries, which can establish their own captive green energy plants.
“It is a very challenging situation. Everything must be calculated product by product,” Bhardwaj stated, emphasizing the complexity. FISME is actively engaging with the government to explore mechanisms for providing green power directly to export-oriented clusters. A significant impediment also identified is the widespread lack of comprehensive emissions data within the MSME sector, which is crucial for CBAM compliance.
CBAM Timeline and Compliance Requirements
The first annual CBAM declaration for 2026 imports is due by September 30, 2027, marking the initial phase of compliance. However, full financial compliance under the definitive regime begins in January 2028. This necessitates that Indian firms exporting to the EU either physically reduce emissions at their source of production or operate under a domestic carbon pricing system that is recognized and accepted by the EU.
The EU, which accounted for 17% of India’s exports and was its third-largest trading partner in 2025, is driving this shift towards low-carbon roadmaps. The impact of CBAM will be most acutely felt in carbon-intensive, trade-exposed sectors such as steel, aluminium, cement, and fertilisers. Exporters will be mandated to provide emissions disclosures, purchase certificates aligned with EU emission trading system prices, and undergo stringent verification processes.
India's Response to Carbon Pricing
India has already notified its Carbon Credit Trading Scheme (CCTS) with the aim of reducing greenhouse gas emissions through the trading of Carbon Credit Certificates. However, the market for credit issuance under this compliance mechanism has yet to become fully operational. The evolving global trade landscape underscores the urgent need for Indian industries, particularly MSMEs, to accelerate their transition to sustainable and low-carbon production methods to maintain competitiveness in key international markets.