Early signs that the EU carbon border adjustment mechanism is reshaping EU–India steel trade

Abstract The EU Carbon Border Adjustment Mechanism (CBAM) aims to level carbon-related costs between domestic and foreign producers to avoid carbon leakage. Although most existing CBAM studies focus on country-level or sector-level aggregates, the policy is applied to individual goods, where emissions performance and trade strategies vary widely across producers. Item-level compliance therefore depends on facility-level characteristics, making firm-level analysis critical to understanding actual exposure and early behavioural adjustments. Here early signals of the CBAM on India’s iron and steel exporters are investigated by integrating firm-level export data with independent estimates of manufacturers’ emissions and production. The analysis reveals that high-emission firms significantly reduced both export quantities and revenues to the EU during the CBAM reporting phase, whereas low-emission firms maintained their export levels. Such supply chain adjustments are in line with EU policy intentions, creating opportunities for low-emission producers while reducing reliance on high-emission suppliers to the EU.