The introduction of the Carbon Border Adjustment Mechanism (CBAM) represents a fundamental shift in the landscape of global trade, moving beyond simple environmental regulation to become a primary determinant of market competitiveness (1). While initially perceived by many as a significant bureaucratic burden, industry leaders now argue that companies can transform CBAM from a compliance requirement into a distinct strategic advantage by proactively managing their carbon data (1)..

The Economic Disparity: Actual vs. Default Values

A central element of the CBAM strategy involves understanding the substantial financial implications of reporting actual carbon emissions versus relying on European Commission-provided default values (1).. Default values are intentionally set at high levels to reflect the most emission-intensive production methods in a given country (1).. In practical terms, this can lead to a drastic cost difference; for instance, importing specific steel products using actual verified emissions might cost €32 per ton, whereas using default values for the same product could escalate the cost to €320 per ton (1). In extreme cases, relying on default values can effectively double the price of imported goods, such as screws, making them uncompetitive against EU-based producers. (1)(2)

Furthermore, the implementation of default values has been fraught with challenges.This creates an environment of uncertainty for importers who require reliable data for financial planning (2).

Strategic Advantage through Data and Verification

To mitigate high costs, exporters, particularly those in the Global South, must prioritize the establishment of robust measurement, reporting, and verification (MRV) systems (2) (3). Providing verified, actual emission data from the outset builds essential trust with EU importers, who are increasingly concerned that their suppliers may be unable to secure the necessary verification (3).

The CBAM cost is determined by a formula that considers actual embedded emissions minus benchmarks, multiplied by a "CBAM factor" and the current EU Emissions Trading System (ETS) price. This CBAM factor is designed to mirror the gradual phase-out of free EU ETS allowances, eventually reaching zero by 2034. As this factor decreases and carbon prices are projected to rise—potentially reaching €250 per ton—the financial penalty for failing to report actual emissions or failing to decarbonise will grow exponentially (2)(3).

Policy Frameworks and International Cooperation

On a diplomatic level, the India-EU Comprehensive Free Trade Agreement (FTA), frequently termed the "mother of all deals," provides a framework for managing CBAM-related friction. The agreement is built upon four strategic pillars: a Most-Favoured Nation (MFN) assurance regarding flexibilities, enhanced technical cooperation, recognition of verifiers to strengthen MRV systems, and financial assistance, including a pledge of nearly €500 million to support India's emission reduction efforts (3).

However, technical cooperation does not equate to immediate recognition of domestic carbon pricing. While India is developing its own Carbon Credit Trading Scheme (CCTS), the EU has historically struggled to reconcile India’s intensity-based targets with its own absolute cap-and-trade system. Consequently, the FTA serves as a structured space for methodological alignment rather than a guarantee of immediate CBAM credits (3).

Navigating Implementation Hurdles

The transition to the definitive phase of CBAM in 2026 has been marked by significant logistical bottlenecks (2)(3). By mid-January 2026, only 27% of the 15,000 applications for CBAM declarant status had been approved, leaving over 10,000 companies in a state of regulatory limbo. Additionally, a projected shortage of EU-appointed verifiers between 2026 and 2027 may create a crisis for factories attempting to secure actual value reporting before final deadlines (3).

To secure a long-term competitive position, businesses are advised to:

  • Implement Monitoring Plans: Engage consultants to map out decarbonisation pathways, such as transitioning from coal-based blast furnaces to electric arc furnaces (3).
  • Manage Supply Chain Data: Exporters must ensure their own suppliers are also reporting verified data, as unverified inputs can force a reliance on high default values for the entire product (3).
  • Incorporate Domestic Carbon Pricing: Where possible, paying carbon taxes in the country of origin allows companies to deduct those costs from their EU CBAM obligation, effectively keeping revenue within the domestic economy (3).

Ultimately, CBAM is acting as a catalyst for a global "domino effect," forcing nations and industries to decide between adopting cleaner production methods or losing access to the lucrative European market. Those who treat the regulation as a strategic pivot rather than a mere tax will be best positioned to lead in the emerging low-carbon trade order (3).

Reference List

  1. Gerber Group, CBAM Default Values: Still Full of Errors After Seven Weeks – Stainless Espresso ttps://steelnews.biz/cbam-default-values-full-of-errors-after-seven-weeks/.
  2. Sharma & Chaturvedi, "CBAM: From friction to a new framework”. https://www.financialexpress.com/opinion/cbam-from-friction-to-a-new-framework/4147584/lite/

Carbon Mandal, "Turning CBAM into a Competitive Advantage: Introduction,". https://www.youtube.com/watch?v=6TlH8qwp26g