The European Union’s CBAM, one of the most significant and closely followed trade measures to combat climate change, will begin to take effect on January 1, 2026. The new policy has alarmed other leading carbon-emitting countries. India and China are particularly concerned since it undermines their coal-powered steel industries. Both countries have vigorously resisted the CBAM. This policy which imposes a de facto carbon tariff and border adjustment on certain imported goods, including steel, has been further inflaming tensions over environmental regulation and trade.
The purpose of the CBAM is to avoid carbon leakage by imposing tariff-equivalents on imports from jurisdictions with weaker climate action. India and China contend that this new mechanism discriminates against their relatively young industries. They are very specifically focused, too, on steel production that is utterly dependent on coal. Both countries have an outsized impact on the global steel market. In response, they worry that the CBAM will become a rich-country trade barrier and impede their path to economic development.
At the recent United Nations climate talks, their counterparts from New Delhi and Beijing escalated those attacks even further. In particular, they set their sights on the EU’s proposed carbon tariff. They stressed the difficult situations their steel industries were in. These industries are already treading a fine line between market disruption and opportunity in an increasingly competitive global landscape. India and China are already joining forces to oppose the CBAM. Their goals are increasing their bargaining leverage in international climate treaties and gaining a competitive advantage through greener domestic development policies while reducing trade tensions with Europe.
The Indian steel sector is the second largest in the world. It relies unreasonably on coal for its main energy source. Likewise, China’s steel sector, the largest in the world, is running up against many of these same constraints because of their carbon-intensive production processes. For many, concerns about the CBAM start with its economic implications. It’s certainly in both countries’ interests to remain competitive in international markets as they lead on the transition to more sustainable practices.
The European Union strongly views the CBAM as an important tool in its climate change mitigation efforts. Essentially, it wants to shield industries of the U.S. from international competitors operating under lax or no environmental mandates. India and China claim that this approach will have unintended and adverse consequences. They fear it will increase the inflammatory atmosphere around U.S.-China trade relations and result in real retaliatory actions.