The 2028 CBAM Expansion: Checking Your Products Against the Downstream Goods List

Navigating the Future: The 2028 CBAM Expansion and Its Impact on Indian Exporters

The European Union's Carbon Border Adjustment Mechanism (CBAM), established by Regulation (EU) 2023/956, is already a significant concern for Indian exporters in sectors like steel, cement, and aluminium. However, the current transitional phase (October 2023 – December 2025) and the definitive phase (starting January 2026) are just the beginning. Indian manufacturers and compliance officers must now look ahead to the 2028 CBAM expansion, which will bring a wider range of "downstream goods" into scope. This article provides a comprehensive guide for Indian MSMEs and large manufacturers to understand this impending expansion, identify affected products, and prepare proactively to maintain their competitive edge in the European market.

The 2028 expansion is not a distant threat; it’s a strategic imperative for Indian businesses. Ignoring it could lead to significant financial penalties, market access restrictions, and a loss of reputation. CarbonSettle, as India's #1 end-to-end CBAM compliance service, is here to demystify these complexities and provide actionable steps for your business.

Key Takeaways

• CBAM Expansion is Imminent: The EU is set to expand CBAM to include "downstream goods" by 2028, significantly broadening its scope beyond the initial five sectors.
• Proactive Product Identification is Crucial: Indian exporters must identify if their products, especially those incorporating iron, steel, or aluminium components, will fall under the expanded CBAM.
• Data Collection is Key: Start collecting detailed emissions data for all input materials and processes now, as this will be required for downstream goods.
• Supply Chain Engagement: Engage with your suppliers to gather their emissions data, as this will directly impact your product's embedded emissions.
• Financial Implications: Understand the potential carbon costs associated with your expanded product portfolio, which could impact profitability.
• CarbonSettle's Role: CarbonSettle offers complete hand-holding for Indian exporters, managing all aspects of CBAM compliance, from data collection to report generation, ensuring you are prepared for both the 2026 definitive phase and the 2028 expansion.

What is the CBAM Expansion and Why Does it Matter to Indian Exporters?

The CBAM expansion refers to the EU's plan to gradually extend the scope of the Carbon Border Adjustment Mechanism beyond the initial five sectors (cement, iron and steel, aluminium, fertilisers, and hydrogen). This expansion is mandated by Regulation (EU) 2023/956, which explicitly states that the Commission will assess the inclusion of other goods, particularly downstream products containing a significant proportion of the currently covered materials, and potentially organic chemicals and polymers, by 2026, with implementation likely by 2028. This matters immensely to Indian exporters because it means a much larger array of manufactured goods, from automotive components to consumer durables, could soon incur a "carbon tax" upon entering the EU.

For Indian MSMEs and large manufacturers in industrial hubs like Ludhiana (known for auto parts and engineering goods), Pune (automotive and manufacturing), and Gujarat (diverse industrial base), this expansion could introduce a new layer of compliance and cost. A manufacturer in Jamshedpur producing steel structures for the European market is already under CBAM, but a manufacturer in Chennai exporting electric vehicle components that heavily use aluminium and steel could soon be. The EU's objective is to prevent "carbon leakage" – the relocation of carbon-intensive production outside the EU – and to encourage global decarbonisation. By expanding CBAM to downstream goods, the EU aims to capture the embedded emissions of more complex products, ensuring that the carbon price signal is felt across a broader spectrum of goods.

Identifying Downstream Goods: How to Check if Your Products Will Be Affected

Identifying whether your products will be affected by the 2028 CBAM expansion requires a detailed analysis of your product's composition, manufacturing processes, and the Harmonized System (HS) or Combined Nomenclature (CN) codes under which they are currently exported. The EU will likely define "downstream goods" based on the proportion of embedded emissions from CBAM-covered materials (iron, steel, aluminium, cement, fertilisers, hydrogen) in the final product.

Here’s a practical step-by-step approach for Indian exporters:

1. Review Your Product Portfolio: List all products you export to the EU. For each product, identify its primary raw materials and components.
2. Component-Level Analysis: For each product, break it down into its constituent parts. For instance, if you export an automotive part, identify the steel chassis, aluminium casing, and any other components.
3. Cross-Reference with Current CBAM List: Check if any of your primary raw materials or significant components are already on the current CBAM list (iron, steel, aluminium, cement, fertilisers, hydrogen). If your product heavily relies on these, it’s a strong candidate for future inclusion.
4. Anticipate EU's Methodology: While the exact methodology for downstream goods is yet to be finalised, the EU will likely consider:
   • Weight Percentage: The proportion by weight of CBAM-covered materials in the final product.
   • Emissions Contribution: The embedded emissions from these materials as a percentage of the total embedded emissions of the final product.
   • HS/CN Code Review: The EU will publish a list of specific HS/CN codes for the expanded scope. Start by reviewing the existing CBAM CN code directory to understand the level of detail the EU uses.
5. Example Scenarios for Indian Exporters:
   • Automotive Components (e.g., in Pune or Chennai): If you export brake discs (steel), engine blocks (aluminium), or chassis components (steel), these are highly likely to be included.
   • Machinery Parts (e.g., in Ludhiana): Gears, shafts, and casings made predominantly from steel or aluminium will be under scrutiny.
   • Consumer Durables (e.g., in Bengaluru or Mumbai): Appliances with significant steel or aluminium enclosures or internal structures could be affected.
   • Construction Components (e.g., in Gujarat): Pre-fabricated steel structures, aluminium window frames, or other building materials containing high proportions of CBAM goods.

It is crucial to start this internal assessment now. Waiting for the definitive list could put you at a significant disadvantage. CarbonSettle's experts can assist Indian exporters in this critical product identification phase, leveraging our deep understanding of EU regulations and product classifications.

The 2026 Regulatory Impact for Indian Exporters: What Changes in the Definitive Phase?

While the 2028 expansion is on the horizon, Indian exporters must first navigate the definitive phase of CBAM, which commences on January 1, 2026. This marks a fundamental shift from reporting obligations to financial obligations, directly impacting your bottom line.

From January 2026, EU importers will be required to purchase CBAM certificates corresponding to the embedded emissions of the goods they import from non-EU countries, including India. The price of these certificates will be linked to the average weekly auction price of EU Emissions Trading System (ETS) allowances, currently fluctuating but often around €60-€100 per tonne of CO2e. This translates to a direct cost for your products.

Key Changes and Financial Obligations:

1. Purchase of CBAM Certificates: EU importers will have to purchase CBAM certificates. The number of certificates required will be equal to the total embedded emissions (in tonnes of CO2e) of the imported goods.
2. Declaration of Actual Emissions: Indian exporters must provide verified actual embedded emissions data for their products. If this data is not provided, or is deemed unreliable, the EU importer will be forced to use default values. These default values are typically significantly higher than actual emissions, often leading to a 20-40% higher CBAM tax burden. For example, if your steel product has actual emissions of 1.5 tonnes CO2e/tonne of steel, but the EU default is 2.5 tonnes CO2e/tonne, you could be paying for an extra 1 tonne CO2e per tonne of steel imported. At €80/tonne CO2e, this is an additional €80 (approx. ₹7,200) per tonne of steel.
3. Verification Requirements: Emissions data provided by Indian exporters will need to be verified by an accredited third-party verifier. This adds another layer of compliance and cost.
4. Reporting Frequency: Declarations will shift from quarterly reports (transitional phase) to annual declarations for the definitive phase.
5. Penalties: Non-compliance or incorrect declarations can lead to significant penalties for the EU importer, which will inevitably be passed back to the Indian exporter. Penalties during the definitive phase could be substantial, potentially reaching €10-€50 per tonne of undeclared emissions, on top of the cost of certificates.

Example Financial Impact for an Indian Steel Exporter:

Consider an Indian steel manufacturer in Jamshedpur exporting 10,000 tonnes of steel to the EU annually.

• Actual Emissions: Let's assume their actual embedded emissions are 1.8 tonnes CO2e per tonne of steel.
• Total Actual Emissions: 10,000 tonnes * 1.8 tCO2e/tonne = 18,000 tCO2e.
• CBAM Cost (Actual): At €80/tCO2e, the cost would be 18,000 * €80 = €1,440,000 (approx. ₹13 crore).
• CBAM Cost (Default Value): If they fail to provide verified actual data, and the EU applies a default value of 2.8 tCO2e/tonne of steel (a common scenario for non-reporting entities), the total emissions would be 10,000 tonnes * 2.8 tCO2e/tonne = 28,000 tCO2e.
• CBAM Cost (Default): At €80/tCO2e, the cost would be 28,000 * €80 = €2,240,000 (approx. ₹20 crore).

This scenario highlights a potential additional cost of €800,000 (approx. ₹7 crore) annually just for not providing verified data. This significant difference underscores why accurate data collection and reporting are paramount for Indian exporters. CarbonSettle's end-to-end CBAM compliance services are designed to help you avoid these default value penalties and ensure your declarations are accurate and verified.

Operational Steps for Indian Exporters to Prepare for 2028

Preparing for the 2028 CBAM expansion requires a systematic approach, building upon the foundations laid for the current CBAM scope. Indian MSMEs need to integrate these steps into their operational planning.

1. Internal Product Mapping and Component Analysis:

   • Action: Create a detailed inventory of all products exported to the EU. For each product, identify all raw materials and components, tracing them back to their origin.
   • Focus: Pay special attention to products containing steel, aluminium, cement, or their derivatives. For instance, an auto component manufacturer in Ludhiana should map every steel bolt, aluminium bracket, and cast iron part.
   • Link: This initial mapping will be crucial for understanding your potential exposure.

2. Enhanced Data Collection Systems:

   • Action: Expand your current emissions data collection to include all relevant downstream products. This means tracking energy consumption (electricity, natural gas, coal, diesel) and process emissions not just for the primary CBAM goods, but for the entire manufacturing process of the downstream product.
   • Details: For electricity, record consumption from utilities like MSEDCL (Maharashtra), UGVCL (Gujarat), or TANGEDCO (Tamil Nadu), along with their specific emission factors if available. For fuel, track consumption and type.
   • Tip: Implement robust data management systems. Manual spreadsheets may suffice for small operations, but larger entities should consider digital solutions.

3. Supply Chain Engagement and Data Solicitation:

   • Action: Reach out to your upstream suppliers for their embedded emissions data. This is critical for downstream products, as a significant portion of the final product's emissions will come from its inputs.
   • Strategy: Develop a clear communication strategy. Explain CBAM's impact and the necessity of their data. Provide templates or guidance for data submission.
   • Challenge: Many Indian suppliers, especially MSMEs, may not have this data readily available. Be prepared to educate and support them. CarbonSettle can help facilitate this complex supplier outreach.

4. HS/CN Code Verification and Classification:

   • Action: Regularly review the official EU communications regarding expanded CBAM scope and the associated HS/CN codes.
   • Resource: Utilize resources like the CBAM CN code directory to anticipate potential inclusions. Work with customs brokers or compliance experts to ensure accurate classification of your expanded product range.

5. Emissions Calculation and Methodology Alignment:

   • Action: Calculate the embedded emissions for your downstream products using EU-approved methodologies. This will involve understanding direct emissions (Scope 1 from your factory, e.g., burning natural gas) and indirect emissions (Scope 2 from purchased electricity). For complex products, upstream emissions from raw materials (Scope 3) will also be critical.
   • Guidance: Adhere strictly to the methodologies outlined in Regulation (EU) 2023/956 and its implementing acts. This is where expert guidance from a CBAM consultant India becomes invaluable.

6. Internal Audit and Verification Readiness:

   • Action: Conduct internal audits of your data collection and calculation processes.
   • Preparation: Prepare for external verification. This involves documenting all data sources, calculation methodologies, and internal controls.

7. Financial Impact Assessment:

   • Action: Quantify the potential CBAM costs for your expanded product portfolio. This will inform your pricing strategies for the EU market.
   • Consideration: Explore opportunities for decarbonisation within your operations to reduce your CBAM liability. Even small reductions in emissions can lead to significant savings over time. For instance, switching to renewable energy sources or improving energy efficiency in your Pune factory could reduce your electricity-related emissions.

These operational steps are not merely compliance burdens; they are opportunities for Indian businesses to enhance their data transparency, improve operational efficiency, and future-proof their exports.

The Role of Accurate Data in Mitigating CBAM Costs for Downstream Goods

Accurate and verifiable emissions data is the cornerstone of mitigating CBAM costs, especially for downstream goods where the complexity of embedded emissions increases significantly. Without precise data, Indian exporters will face the punitive application of EU default values, which are designed to be conservative and often significantly higher than actual emissions.

For instance, if you're exporting an aluminium casting from Gujarat, the embedded emissions will include not just the energy used in your casting process, but also the emissions from the primary aluminium production, which could be from a smelter using coal-fired power. If you cannot provide verified data for both your process and your upstream aluminium, the EU will apply a high default value, potentially increasing your CBAM liability by 30-50%.

Why Accurate Data is Crucial:

• Avoid Default Values: As discussed, default values can inflate your CBAM costs by 20-40% or even more. For a medium-sized exporter in Ludhiana, this could mean an additional annual CBAM cost of ₹50 lakhs to ₹1 crore (approx. €55,000 - €110,000).
• Competitive Advantage: Exporters who can demonstrate lower actual embedded emissions will have a competitive advantage, as their products will incur lower CBAM costs for EU importers.
• Supply Chain Optimisation: Accurate data allows you to identify emission hotspots within your supply chain, enabling targeted decarbonisation efforts.
• Transparency and Trust: Providing verified data builds trust with your EU importers and demonstrates your commitment to sustainability.

Challenges for Indian Exporters:

• Data Availability: Many Indian MSMEs lack robust systems for tracking emissions data at the product level.
• Supplier Data: Obtaining emissions data from upstream suppliers, especially smaller ones, can be challenging.
• Methodological Complexity: Calculating embedded emissions for complex downstream products requires expertise in EU methodologies.

This is precisely where CarbonSettle’s expertise comes into play. We take on the entire burden of data collection, calculation, and verification, ensuring your emissions data is accurate, compliant, and ready for EU scrutiny.

How CarbonSettle Can Help: Your End-to-End CBAM Compliance Partner

Navigating the complexities of CBAM, especially with the impending 2028 expansion to downstream goods, can be overwhelming for Indian exporters. This is where CarbonSettle steps in as your dedicated, end-to-end CBAM compliance service. We are not a software platform; we are your expert team on the ground, handling every aspect of your CBAM journey.

CarbonSettle is India's #1 end-to-end CBAM compliance service, providing complete hand-holding from the moment you engage with us until your reports are submitted and verified. We understand the unique challenges faced by Indian manufacturers, from the nuances of local utility emission factors (e.g., for MSEDCL, UGVCL, TANGEDCO) to the intricacies of supply chain data collection in diverse industrial settings like Pune, Ludhiana, or Jamshedpur.

**Here’s how CarbonSettle takes your