India’s aluminium exports to the European Union (EU) are set to become unviable once the 27-nation bloc implements the Cross-Border Adjustment Mechanism (CBAM) to help reduce its carbon emissions and eventually attain Net-Zero carbon emissions by 2050.

Under CBAM, which takes effect in a few months — the transition phase is expected to start from October 1, 2023 — and would be applicable to iron and steel, cement, aluminium, fertilisers, and electricity to start with, importers in the EU must declare the embedded carbon emissions in goods on a quarterly basis.

Initially, a 100% free allowance will be applicable. However, starting 2026, the free allowance will be gradually phased out, and completely removed by 2034. Then on, everything above the allowance will be taxed based on Emissions Trading System (ETS) weekly prices.

That bodes ill for Indian aluminium manufacturers. To be sure, India produces 4.1 million tonne (MT) of primary aluminium annually — amounting to 6% of global production — of which as much as 56%, or 2.3 MT, is exported. It is one of the lowest-cost producers of aluminium globally owing to integrated operations and low costs of power generation since it uses coalbased captive plants.

The EU is not only India’s second-largest trading partner, but also an attractive destination for aluminium exports. Indeed, in fiscal 2023, primary aluminium accounted for as much as 29% of the total $74.8 billion of merchandise exports from India to the EU.

As such, primary aluminium production is one of the most energy-intensive processes in the metals and mining industry.