CBAM: What GCC and Indian Exporters Need to Quantify

Since October 2023, companies exporting steel, iron, aluminium, cement, fertilisers, and hydrogen to the European Union have been required to report embedded greenhouse gas emissions for every shipment. No certificates. No financial cost. Just reporting.

From January 2026, that changes. EU importers will begin purchasing CBAM certificates — priced weekly against the EU Emissions Trading System — to cover a rising share of those embedded emissions. By 2034, the obligation reaches 100 percent.

For most GCC and Indian exporters, the cost is not yet visible in price negotiations. That is the problem. The EU importer carries the legal obligation, but in a competitive market, that cost will migrate to the supply agreement within one or two contract cycles.

What the mechanism actually does

CBAM calculates a financial liability based on three variables: the volume of goods exported to the EU, the embedded CO₂ and N₂O in those goods (measured in tonnes per tonne of output), and the prevailing EU ETS carbon price.

The formula is straightforward:

Liability = Volume × Embedded Emissions × (EU ETS Price − Carbon Price Paid in Country of Origin)

The deduction for carbon prices paid in origin countries is the mechanism's primary concession to exporters. India has a partial carbon market under the Energy Conservation Act, and several GCC states are building domestic pricing schemes. Any evidenced carbon cost paid in the country of production reduces the EU certificate obligation proportionally.

At current EU ETS levels of approximately €60–70 per tonne CO₂e, and using EU default embedded emission factors, the indicative liability for common export products looks like this:

The 2026 phase-in factor is 2.5 percent of full obligation. It looks manageable. The trajectory does not. By 2030, 50 percent of full liability applies. By 2034, exporters operating on default emission factors will absorb the complete cost.

Default versus actual emissions — the decision that matters now

EU Regulation 2023/956 provides default embedded emission factors derived from average production data for each sector. These defaults are set conservatively high — they reflect average global production, which is typically carbon-intensive. An Indian steel producer using DRI-EAF (direct reduced iron — electric arc furnace) routes will have actual embedded emissions well below the steel flat products default of 1.89 t CO₂e per tonne.

To use actual production emissions instead of defaults, a company must:

• Measure and document direct emissions (Scope 1) at the installation level
• For some sectors, measure indirect emissions from electricity consumed (Scope 2)
• Have those measurements certified under an EU-accredited methodology
• Transmit verified data to the EU declarant (the importer) who submits the CBAM declaration

This is not a compliance checkbox. It is a commercial differentiator. A producer who can demonstrate actual embedded emissions of 1.2 t CO₂e per tonne on steel flat products — against a default of 1.89 — pays 37 percent less CBAM liability per tonne. At scale, for a 100,000-tonne annual shipment to the EU, that difference is approximately €4.5 million per year at full obligation.

What exporters in the GCC and India should do now

The transitional period — which runs until end of 2025 — permitted the use of estimated values and allowed EU importers to use simplified calculation methodologies. That flexibility ends. From 2026, actual or EU-default emissions must be used. There is no third option.

For exporters with meaningful EU market exposure, the practical priorities are:

1. Establish your baseline

Map all EU-bound shipments by HS code, determine whether those codes fall under CBAM Annex I, and calculate indicative liability using EU default factors. This establishes the maximum exposure. Use the CBAM Liability Estimator on this site for a first-pass figure.

2. Assess your production emissions

For the sectors where default factors are highest — primary aluminium, hydrogen, DRI — the gap between actual and default emissions is typically largest. Commission an emissions audit of the production installation before the 2026 reporting deadline.

3. Align with EU importers

The legal obligation sits with the EU declarant — your importer or their customs representative. But they need your verified emissions data to submit an accurate declaration. Companies that can provide certified data on time, in the correct format, will be preferred counterparties. Those that cannot will either lose the contract or see the default-factor cost passed back through price.

4. Monitor ETS price trajectory

EU ETS prices have ranged from €45 to €100 per tonne over the past three years. CBAM certificate prices move with them. Exporters with high embedded emissions should model their liability under €50, €70, and €100 ETS price scenarios and understand at what price point the EU market becomes uneconomic for their product.

The structural issue: this is a competitiveness problem, not a compliance problem

Companies that frame CBAM as a compliance task will spend money on reporting systems without changing their commercial position. The exporters who gain from CBAM are those who use it to accelerate decarbonisation investments — switching to lower-carbon production routes, investing in energy efficiency, or sourcing renewable electricity — and then demonstrate that improvement with verified data.

The EU's logic is explicit: CBAM is designed to make carbon-intensive production outside Europe progressively more expensive relative to cleaner alternatives. For the GCC and Indian steel, aluminium, and fertiliser industries, the trajectory is known. The question is how quickly each producer moves to change the equation.

We work with companies across the GCC–India corridor on CBAM exposure quantification, emissions audit design, and supply agreement restructuring. If you want to understand your specific liability position, contact us or use the estimator below.