Traversing Environmental Regulations: How Indian Exporters are Adapting to Global Sustainability Standards
As the global marketplace becomes increasingly climate-conscious, sustainability is no longer a “nice-to-have” but a business imperative. International trade is rapidly evolving to include stricter environmental regulations, especially from major economies like the European Union. Measures such as the EU’s Carbon Border Adjustment Mechanism (CBAM) and global ESG disclosure requirements are pushing exporters across the world to rethink how and what they trade. Considering that CBAM will apply in its definitive regime from 2026, it is important to understand what exactly CBAM entails and how it affects Indian exporters.
CBAM is the EU’s regulatory tool aimed at leveling the playing field by placing a fair cost on the carbon emissions associated with the production of carbon-intensive goods imported into the EU. 1 Its goal is to promote cleaner industrial practices in non-EU countries while ensuring that imported goods bear the same carbon costs as those produced within the EU. 2 By doing so, the CBAM helps uphold the EU’s climate targets without disadvantaging domestic industries. 3 Designed to align with WTO rules, CBAM treats all goods- whether imported or locally produced, equally and on the basis of their carbon footprint.4
For India- one of the world’s largest exporters of goods ranging from textiles to engineering products, and also the world’s third largest carbon emitter following China and the U.S.A, 5 the implementation of such regulation presents both a challenge and an opportunity. Indian businesses now face the crucial task of aligning with global sustainability standards to remain competitive in international markets. the implementation of such regulation presents both a challenge and an opportunity. Indian businesses now face the crucial task of aligning with global sustainability standards to remain competitive in international markets.
India’s exporters are taking proactive steps to address these emerging expectations. Carbon-intensive sectors like steel, cement, and aluminum- directly affected by the CBAM, are reconfiguring their operations to track emissions. They are also investing in greener technologies, improving transparency across their supply chains, implementing carbon accounting and exploring energy-efficient alternatives to stay ahead of impending regulations. 6 Moreover, large exporters are nudging smaller suppliers toward sustainable practices to ensure end-to-end compliance.
The introduction of CBAM presents significant implications for India. As a key exporter of carbon-intensive goods like steel, aluminium, and cement to the EU, India must now contend with the financial and operational challenges posed by this new carbon pricing mechanism. 7 These sectors, heavily reliant on coal-based energy, face increased costs due to their high emissions profiles. As a result, Indian exporters are under pressure to adapt, while policymakers and industry leaders are being called to reassess production methods and export strategies to minimize the economic impact and ensure continued competitiveness in EU markets. 8
The implementation of CBAM presents a number of challenges for India, chief among them being the potential rise in production costs that could weaken the competitiveness of Indian exports in the EU. 9 This concern is amplified by the carbon-intensive nature of India’s manufacturing sector, where coal still accounts for roughly 75% of energy consumption. 10 The stark contrast between India’s energy mix and the EU’s growing reliance on renewable alternatives, highlights the urgent need for India to transition toward cleaner energy sources and more sustainable production methods.
Yet, embedded within these challenges are opportunities for progress. CBAM has the potential to act as a powerful driver of change, encouraging Indian industries to adopt greener technologies and practices. 11 While the transition may seem daunting, it is both a strategic necessity and a chance to strengthen India’s long-term environmental and economic resilience in a globally evolving trade landscape.
To conclude, Indian manufacturers are likely to to be significantly impacted by the imposition of CBAM. However, the Indian government has introduced a number of policies to help domestic industries mitigate the affects of CBAM. Policy initiatives like the Production Linked Incentive (PLI) schemes now include green manufacturing goals 12, and India’s Bureau of Energy Efficiency (BEE) has begun working on carbon certification frameworks that could ease compliance with global norms. Furthermore, the development of a Carbon Credit Trading System (CCTS) in India marks a progressive step towards integrating market-based mechanisms to address environmental challenges. 13 Such mechanisms can encourage carbon-efficient practices across industries, helping to mitigate some of the financial pressures introduced by CBAM while advancing sustainable industrial development. 14 Additionally, digital tools and platforms are emerging to help exporters gather data, benchmark performance, and report on sustainability metrics. The Indian government is also promoting renewable energy and investing in carbon capture technloges. 15 These significant steps towards building a greener economy are a necessity in the face of exacerbated global climate change. The transition will benefit India in the long run by improving its international competitiveness and generating sustainable economic growth.
References
1, 2, 3, 4. EU-India Advance Cooperation on CBAM. Taxation and Customs Union, July 5, 2024.
https://taxation-customs.ec.europa.eu/news/eu-india-advance-cooperation-cbam-2024-%2007-05_en.
5. Saptakee, S. “India Challenges EU’s Carbon Border Adjustment Mechanism (CBAM).” Carbon Credits, March 18, 2024
https://carboncredits.com/india-challenges-eus-carbon-border-adjustment-mechanism-c bam/.
6. ASSOCHAM, “Carbon Border Adjustment Mechnaism”, August 21, 2024,
7, 8, 9, 10, 11, 12, 13, 14. “India’s Roadmap to Navigate the EU’s Carbon Tax.” Earthood. Accessed April 8, 2025.
https://www.earthood.com/earthscoop/indias-roadmap-to-navigate-the-eus-carbon-tax.
15. Bhardwaj, Naina. “How Will the EU Carbon Border Adjustment Mechanism Impact India?” India Briefing News, October 11, 2023.