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Long before carbon levies kick in, Indian exporters are already footing the bill for Europe’s climate push — drowning in audits, certificates, and compliance checks that turn decarbonisation into a bureaucratic barrier
Image Source: Getty
Before a single euro of carbon tax is paid, Indian exporters are already footing the bill for Europe’s green transition — not in emissions, but in audit trails, Excel sheets, and third-party certificates. The EU’s Carbon Border Adjustment Mechanism (CBAM), still in its transitional phase, is building a wall of regulation around the European market. Exporters must now prove the carbon credibility of every shipment through emissions calculations, ISO-based certifications, and digital reporting. For many, this is less about decarbonisation and more about documentation.
Exporters must now prove the carbon credibility of every shipment through emissions calculations, ISO-based certifications, and digital reporting. For many, this is less about decarbonisation and more about documentation.
This compliance burden hits exporters unevenly. Large firms may absorb it with dedicated teams and integrated systems, but for India’s small and medium enterprises (SMEs), the strain is disproportionately high. While public focus remains on the price of carbon, this article argues that CBAM also operates as a de facto non-tariff barrier, driven by the hidden costs of its compliance machinery.
Source: Growlity
Under the transitional phase (October 2023- December 2025), non-EU exporters of steel, aluminium, cement, fertilisers, hydrogen, and electricity must deliver a full suite of carbon compliance paperwork. The obligation applies to all consignments valued at EUR 150 or more. Smaller shipments are currently exempt, offering limited relief to low-volume exporters. However, this exemption is temporary. The European Commission has signalled that CBAM’s scope will expand, potentially to include polymers, chemicals, and even downstream goods. This makes early compliance critical.
Source: CBAM Guidance Report
1. Product‑Level Emissions Calculation
Exporters must calculate both direct (Scope 1) and indirect (Scope 2) Greenhouse Gas (GHG) emissions for every Combined Nomenclature-coded product shipped to the EU. These calculations must be done at the facility level. If a facility manufactures multiple goods, the total emissions must be split proportionally across products.
A fundamental requirement in this process is defining the system boundaries. All direct emissions from processes like fuel combustion, heating, cooling, chemical reactions, and waste processing must be included. If inputs like precursors are produced off-site, their emissions must also be reported, unless clearly excluded under EU guidelines.
Exporters must calculate both direct (Scope 1) and indirect (Scope 2) Greenhouse Gas (GHG) emissions for every Combined Nomenclature-coded product shipped to the EU.
During the transitional phase, it is only required to report embedded emissions (direct and indirect), without purchasing or surrendering CBAM certificates. For sectors such as cement and fertilisers, indirect emissions will only be formally included after the transition, following an established methodology.
Initially, the EU permitted the use of default values for both direct and indirect emissions. But since August 2024, their use has been restricted to electricity and up to 20 percent of indirect emissions from precursors in complex goods. All other reporting now requires facility-specific data, raising the bar for compliance.
2. Carbon Intensity Certification
After calculating emissions, exporters must obtain official certification verifying the embedded carbon content in their goods. This is done using recognised international standards, primarily ISO 14067 or the EU-specific EN 19694-2. These methodologies establish clear rules for defining system boundaries, selecting emission factors, and ensuring transparency throughout the product life cycle.
Until December 2024, exporters could choose from three Monitoring, Reporting, and Verification (MRV) methodologies:
However, since January 2025, only the EU method is accepted. That requires full alignment with EU protocols for separating direct and indirect emissions, allocating emissions per tonne, and disclosing any carbon price already paid. Certification, based on these standards, is mandatory; without it, shipments cannot proceed through the CBAM pipeline after 2025.
3. Third‑Party Verification
While third-party verification is optional during the transitional phase, it becomes mandatory starting January 2026. All emissions data submitted under CBAM must then be validated by EU-accredited independent verifiers. These verifiers assess the data accuracy, traceability, and completeness of emissions calculations and the use of correct methodologies.
Only verifiers listed in the EU’s official accreditation registry are authorised to perform this task. They must operate under ISO 17029 and ISO 14065 standards, ensuring impartiality and technical competence.
Indian exporters will either need to:
This creates a significant operational challenge. As of 2025, India has a limited pool of auditors familiar with EU standards. Booking, coordinating, and onboarding approved verifiers, especially for high-volume exporters, will require advanced planning and additional budgetary outlays.
4. Digital Declaration Submission (Per Shipment)
Each CBAM shipment must be digitally declared by the EU importer via the CBAM Transitional Registry. This registry is linked to the Economic Operators Registration and Identification (EORI) number of the declarant. Indian exporters, in turn, must coordinate with their EU buyers to provide facility-level, product-specific carbon data in the required format. Any missing information or errors can result in customs delays or outright rejection of the shipment.
Data can be submitted in three ways:
5. Quarterly Reporting and CBAM Certificate Management
Once shipment declarations are submitted, CBAM compliance doesn’t end there. EU importers must file a quarterly report via the CBAM Transitional Registry, consolidating all covered imports for that period using emissions data provided by non-EU exporters. The report must include:
These declarations must conform to EU formats, be linked to specific facilities, and correspond to the customs clearance date, referred to as the “release to market.”
However, non-compliance, even during the transitional phase, carries financial penalties. If the declarant fails to report embedded emissions accurately or misses the quarterly deadline, they may be fined between EUR 10 and EUR 50 per tonne of unreported CO₂e, increasing to EUR 100 per tonne from 2026. These penalties apply regardless of whether the importer or exporter is at fault, exerting pressure on exporters to ensure timely, verified, and formatted data sharing.
Exemptions apply only to countries participating in the EU ETS or those with an equivalent domestic carbon price, in which case the amount already paid will be deducted from the CBAM fee.
Starting in 2026, CBAM enters its definitive phase, where importers must not only report emissions but also purchase/surrender CBAM certificates annually. These will be priced in line with the average weekly EU Emissions Trading System (ETS) allowance, ensuring carbon cost parity between EU and non-EU producers. Exemptions apply only to countries participating in the EU ETS or those with an equivalent domestic carbon price, in which case the amount already paid will be deducted from the CBAM fee. Yet, even here, the burden of proof rests with the exporter, further adding to the compliance overhead.
Compliance under CBAM carries both direct and recurring indirect financial burdens that align with each stage of the reporting process. The most visible cost lies at the quarterly declaration stage, where EU importers must purchase CBAM certificates based on the embedded emissions of each product. As of May 2025, these were priced at approximately EUR 70.38 per tonne of CO₂e.
However, reaching that stage involves various other costs. At the emissions calculating stage, exporters must build emission-tracking systems. Digital MRV systems, including monitoring software, ERP integration, and expert consultancy, come with high initial outlays. Manual MRV, while cheaper upfront, imposes recurring costs across monitoring, reporting, and verification stages.
Certification, typically aligned with ISO 14064 standards, adds annual costs. Large exporters may spend INR 2.5–5 lakh annually on audits and reporting, while training internal auditors alone can cost INR 20,000–40,000 per person. These costs scale quickly, especially for firms operating across multiple facilities. Third-party verification adds further strain, as EU-accredited verifiers are both budget-intensive and scarce in the Indian context.
Firms must train staff to manage quarterly CBAM filings, operate the EU portal, and maintain emissions data by facility and CN code.
Lastly, digital compliance infrastructure adds a hidden but critical cost layer. Firms must train staff to manage quarterly CBAM filings, operate the EU portal, and maintain emissions data by facility and CN code. These documentation and upskilling efforts often go underestimated.
Altogether, these direct and indirect expenses can increase export prices by 20–25 percent. While bundled compliance platforms may help organise exports, they cannot offset the structural financial drag CBAM introduces.
CBAM compliance is more than a procedural checkbox; it’s demanding, both in technical and administrative terms. Its real weight lies in the layers of compliance: emissions tracking, certifications, digital filings, and verification protocols. For Indian exporters, the cost arises not only from carbon but from the burden of proving every shipment’s footprint, with SMEs and carbon-heavy sectors such as secondary steel bearing the deepest brunt. As the compliance net tightens, it is documentation, not decarbonisation, that risks pricing them out. CBAM’s climate ambition may be noble, but its execution is bureaucratically extractive.
Manini is a Research Assistant with the Centre for Economy and Growth at the Observer Research Foundation.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
Manini is a Research Assistant at the Centre for Economy and Growth, ORF New Delhi. Her research focuses on the intersection of geopolitics with international ...
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