Impact of carbon border adjustment mechanism (CBAM) on steel decarbonization in India: a multi-stakeholder perspective on ambition vs. equity

The European Union (EU)’s carbon border adjustment mechanism (CBAM), the maiden border carbon adjustment (BCA) on cross-border trade, has entered into force in October, 2023. While CBAM is aimed at preventing the risk of carbon leakage, another objective is enhancing the decarbonization in the covered hard-to-abate sectors and concomitant greenhouse gas emissions reduction in the EU’s trade partners. In this article, we examine how far CBAM could be effective in achieving the latter objective, by considering the iron and steel sector in India as a case in point. Our hypothesis is that CBAM will induce the “Brussels Effect” on steel decarbonization in India. The Brussels Effect refers to the EU’s power to transmit its own regulation beyond its border ‘unilaterally’, through an interplay between EU regulations and the market forces’ ability to externalize those regulations in different markets. We test this hypothesis by applying a qualitative research methodology that combines secondary data gathered from multiple streams of literature with primary data collected through focused group discussion and key-informant-interviews involving 41 stakeholders of diverse categories representing steel companies, industry associations, government, academia, civil society, and inter-governmental-organizations conducted between July 2023 and October 2024. Our findings indicate that the Brussels Effect on steel decarbonization in India may be valid for the big steel producers, but only partially. However, the effect may not work for the small and medium enterprises in India. Thus, the impact of CBAM on the Indian steel industry would likely be uneven and inequitable, with the larger players adapting faster and relatively more easily compared to smaller players, whose challenges may exacerbate if they are exposed to CBAM. We propose a set of design recommendations for BCAs that the EU and other prospective BCA-imposing countries could consider better balancing the ambition of enhanced decarbonization with equity in their trading partners from the Global South.