Not a tariff but a price: what new figures on Indian steel reveal about CBAM

Two Stories, One Question

In a new analysis, the think tank Sandbag has calculated that India's steel sector can expect significantly lower CBAM costs than feared. Almost simultaneously, the US Ambassador to the EU called CBAM a tariff by a different name in an op-ed in the Financial Times. So what is CBAM actually, a trade barrier or a price on emissions?

What Sandbag Calculates

The analysis, published on 4 August, models three scenarios for India's steel exports to the EU through 2034. If nothing changes, CBAM costs add up to around 762 million euros. If Indian producers deliberately redirect their existing lower-emission production to the EU market, the bill falls to around 407 million euros. Factoring in price premiums for greener steel leaves around 79 million euros. The gap between the worst and the best scenario is almost tenfold, at identical export volumes. Sandbag director Adrien Assous followed up in an interview with S&P Global on 10 August, saying the feared costs are likely significantly overstated. India's steel industry, he argued, has the know-how and the scale to absorb the CBAM effect if suppliers react appropriately.

Why a Tariff Could Not Do This

That gap is precisely the point. A tariff is levied on the value or volume of a good and can only be reduced by trading less. CBAM costs arise differently. The certificate price follows the average of EU ETS auctions, at 75.36 euros per tonne in the first quarter and 75.28 euros in the second. How many certificates an importer must surrender depends solely on the embedded emissions of the goods. Verified actual installation data instead of default values lowers the surrender obligation, a carbon price already paid in a third country is credited, and the implementing rules for this are available in draft form. Clean production means paying little, in the limiting case nothing. An instrument with this property puts a price on the carbon intensity of a good, not on its origin.

The Charge From Washington, Briefly Assessed

Against this background, the op-ed of 12 August does not carry far. EU producers pay the same carbon price in the emissions trading system that importers pay through CBAM certificates, and as free allocation phases out, this equal treatment becomes complete. The Sandbag figures also show that the cost burden is not imposed on any country wholesale but follows the emissions intensity of the individual installation. Whether CBAM is WTO-compliant will soon be examined by a panel in case DS639. Economically, it remains a border adjustment of the European carbon price.

The Lever Sits in Procurement

For EU importers, however, the Sandbag calculation is no reason to sit back and relax. If Indian producers redirect lower-emission production to the EU market, supplier selection determines which side of the tenfold gap your own CBAM costs land on. Requesting verified installation data from suppliers now, and calculating the portfolio on actual emissions instead of default values, turns CBAM into a manageable cost factor.

Outlook

At the end of August, the WTO Dispute Settlement Body meets again, where the panel requested by Russia against CBAM is likely to be established at the second attempt. In early October, the Commission will also publish the certificate price for the third quarter, the next data point for cost planning. We will continue to monitor both for you.

Support

If you would like to understand how large the gap between default values and actual installation emissions is for your own imports, or how to systematically obtain verified data from your suppliers, please get in touch at helge@kolum.earth.