The European Union’s Carbon Border Adjustment Mechanism (CBAM) represents a structural shift in global trade by explicitly linking market access to carbon performance in emissions-intensive sectors. For India, whose iron & steel, aluminium, and cement industries are both carbon-intensive and export-oriented, CBAM poses significant competitiveness risks while reinforcing the urgency of industrial decarbonization. This policy brief examines CBAM’s implications for these industries and assesses the transition from the Perform, Achieve, and Trade (PAT) scheme to a nationwide Carbon Trading Scheme (CTS) as a strategic response.
The brief argues that while PAT has delivered incremental efficiency gains, it is insufficient to align industry with India’s net-zero pathway or to mitigate CBAM-related trade exposure. Drawing on sectoral emissions data, international experience with carbon markets, and recent industrial decarbonization roadmaps, it highlights the potential of a well-designed CTS – robust monitoring, reporting, and verification (MRV), credible price signals, and alignment with technological transformation are needed to drive decarbonization in hard-to-abate sectors. The analysis underscores the importance of coupling carbon pricing with targeted incentives for low-carbon technologies and ensuring institutional coordination across climate, energy, and industrial policy domains.
CBAM can function not only as a trade constraint but as a catalyst for industrial upgrading. A technology-aligned CTS can help India safeguard export competitiveness while accelerating its transition toward low-carbon industrialization.
