Carbon Tariff as a Catalyst? The EU CBAM and Industrial Decarbonization Pathways in India

The European Union’s Carbon Border Adjustment Mechanism (CBAM), scheduled to become fully operational in 2026, is expected to significantly affect the competitiveness of carbon-intensive industrial exports from India. Existing literature has largely framed CBAM as an external trade shock for Global South exporters (such as India), emphasising its distributional impacts and its potential to perpetuate climate injustices (Best, 2023; Centre for Science and Environment, 2024; Das and Bandyopadhyay, 2025). While this literature has provided important normative and legal insights, comparatively little attention (Centre for Science and Environment, 2024; Ember, 2025) has been paid to a more fundamental question: whether, and under what conditions, CBAM can induce economically viable decarbonisation pathways in Indian industries, rather than functioning primarily as a trade barrier. This paper addresses this gap through a two-step analytical approach that combines sector-level techno-economic modelling with policy and regulatory analysis. First, it estimates CBAM exposure across key Indian industrial sectors under business-as-usual production and evaluates the extent to which alternative technology pathways can reduce emissions and mitigate CBAM-related exposure under realistic cost, performance, and deployment constraints. The analysis also identifies the scale, sequencing, and sector-specific nature of technology investments required to achieve these outcomes. Second, it links these findings to a broader assessment of domestic and international opportunity frontiers through systematic analysis of policy and regulatory documents. This step examines how CBAM-related compliance, reporting, and transition requirements could facilitate the integration of Indian producers into low-carbon global value chains. Particular attention is paid to the implications for preferential market access, standards alignment, and for bilateral and multilateral cooperation to support technology transfer and investment flows. Rather than treating CBAM solely as an exogenous trade shock, this paper conceptualises it as part of an emerging architecture of climate-linked geoeconomic governance that conditions—without determining—industrial decarbonization options in emerging economies. Empirically, it provides sector-specific insights into the feasibility of decarbonization pathways under carbon-constrained trade conditions. Theoretically, it contributes to political economic debates on climate trade policy by clarifying how carbon border measures can reshape incentives, constraints, and strategic choices across global value chains, advancing understanding beyond normative accounts of carbon tariffs as sources of climate injustice.