On January 1, 2026, the European Union (EU)’s Carbon Border Adjustment Mechanism (CBAM) came into force, and is in full force. Europe calls this fairness: European producers pay the carbon price, so imports should too.

On paper, this seems fair; In practice, the door to fair competition for India is only half open. European steel, aluminum and cement producers enjoy large-scale decarbonization subsidies and subsidized public finance.

They will also continue to receive free allowances under the EU emissions trading system, which will be phased out from 2026 to 2034, reducing their effective carbon costs even as the CBAM phase-out begins. In contrast, Indian exporters have to bear the full burden of CBAM duty without matching state support.