INTERVIEW: Sandbag says EU CBAM cost for Indian steel likely overstated

The potential cost of the EU's Carbon Border Adjustment Mechanism for Indian steel exporters is likely overstated in headline estimates once industry differences, industry reallocation and European market pricing are taken into account, Sandbag Executive Director Adrien Assous told Platts, part of S&P Global Energy, in an interview Aug. 7.

Sandbag's modeling puts business-as-usual CBAM fees for Indian steel exports at Eur762 million in 2034, but shows that industry reallocation could reduce that to Eur407 million, while the EU market price effect alone could cut the cost to Eur428 million.

Assous said the analysis assumes 80% of EU carbon costs will be reflected in European market prices as free allocations under the EU Emissions Trading System are phased out, benefiting both EU-made steel and imports, while monitoring, reporting and verification remain critical for exporters seeking to reduce CBAM exposure.

Sandbag's report suggests the CBAM impact on Indian steel is often overstated once industry differences and market behavior are factored in. Which assumption in your model does the most work in reducing that impact?

Assous: Since most of the steel consumed in Europe is made in Europe, we do not expect European prices to be driven mainly by CBAM costs in any particular exporting country, but rather by EU production costs. Since CBAM creates additional costs for EU producers through the phaseout of free allocation in the EU ETS, we expect a price rise in the EU of a similar magnitude. In our modeling, we assumed 80% of EU carbon costs would be reflected in market prices. This price increase would benefit both EU-made goods and imports.

There is a wide gap between the business-as-usual estimate of Eur762 million in 2034 CBAM fees and the lower estimates in Sandbag's modeling. How should the market understand that difference?

Assous: Both effects are of similar magnitude in our modeling. Industry reallocation reduces CBAM fees from Eur762 million to Eur407 million, while the EU market price effect alone reduces CBAM costs to Eur428 million.

European steel buyers are highly price sensitive. Do you expect Indian exporters to pass CBAM costs through, or will they have to take the hit on margins to protect market share?

Assous: The price effect is expected to be driven mainly by EU production costs, rather than by CBAM costs in any one exporting country. Since most steel consumed in Europe is produced domestically, imports should also benefit from higher European market prices as EU costs rise. That does not remove the CBAM cost, but it means exporters may not have to absorb the full amount through their margins.

Market participants say the administrative burden of CBAM is being underestimated. Could this hidden cost push smaller Indian mills or downstream suppliers out of the EU market?

Assous: The ability to perform monitoring, reporting and verification is critical. In the report, we identified three main enablers for reducing CBAM exposure: the existence of low-carbon production capacity under CBAM anti-circumvention rules, proximity of that capacity to sea transport infrastructure and the ability to perform MRV. For flat steel goods, we found that all three criteria are met. For long products, things might get complicated if the EU closes the ability to report pre-consumer scrap as zero-emissions, as might be the case from 2028 onward.

A lot appears to depend on whether the EU recognizes carbon costs or equivalent compliance measures already paid in India. If that recognition does not come through, how quickly does CBAM move from a manageable cost to a real threat for Indian mills?

Assous: For our report, we did not model any discount for the carbon price paid in India, so the effects we described assume no such pricing measures. Recognized carbon pricing measures would reduce payouts from India to the EU, but they would not reduce costs for individual Indian mills, which would still need to pay similar fees to their local authorities.

Given India's continued reliance on blast furnaces, what is the most bankable decarbonization pathway for an Indian steel exporter looking toward 2030?

Assous: The report points to practical enablers rather than a single technology route: low-carbon production capacity that complies with CBAM anti-circumvention rules, access to sea transport infrastructure and the ability to perform MRV. For flat steel, those conditions are largely met. Long products face more uncertainty, particularly if EU rules on pre-consumer scrap emissions reporting change from 2028 onward.

Even if Indian producers decarbonize and manage the CBAM cost, Europe is also tightening trade defenses and import controls. Is there a risk that low-carbon Indian steel still finds the EU market effectively closed?

Assous: Access to the EU market could be restricted for reasons external to CBAM, such as trade disputes. Narrowing the question to CBAM, its objective is to prevent carbon leakage — the displacement of EU production to countries with less stringent climate policies — not to reverse trade. Reducing access for imports would give EU producers more pricing power, increase inflation and harm downstream industries, so I do not think the EU has an interest in going down that route.

This interview has been edited for length and clarity.