Introduction

The European Union's Carbon Border Adjustment Mechanism (CBAM) was initially put  forward in July 2021 as part of the Fit for 55 (Marcu et al. n.d.) climate package and was formally enacted under  the Regulation (EU) 2023/956 on May 16, 2023. The regulation entered into force on May 17, 2023, marking the beginning of a transition period in phases. Designed to impose carbon charges on imported goods that are the same as those which EU producers pay under the EU Emissions Trading System (EU ETS), CBAM is designed to prevent "carbon leakage"—the relocation of industries to nations with less stringent environmental policies. The mechanism presently covers five carbon-intensive industries such as cement, aluminium, fertilisers, electricity/hydrogen and iron & steel, with future plans for expansion. In addition, the EU-India Clean Energy and Climate Partnership has strengthened their bilateral dialogue on green hydrogen, carbon markets, and industrial decarbonization. Joint working groups are exploring CBAM's trade and technology implications in their search for convergence between EU regulatory ambitions and India’s development priorities, a cooperation that could define how emerging economies engage with global carbon-adjustment frameworks. 

India is the world’s second-largest steel producer, and its steel exports to the European Union are particularly vulnerable to the EU’s Carbon Border Adjustment Mechanism (CBAM). Among India’s states, Odisha is a critical industrial hub due to its rich mineral deposits, extensive steel production infrastructure, and growing renewable energy potential. The state contributes nearly 25% of India’s total steel output and hosts major producers such as Tata Steel, Jindal Steel and Power, and JSW Steel (Goldar et al. 2024). These industries are deeply embedded in local economies, ecosystems, and regional energy systems. Odisha’s prominence in India’s steel sector makes it a relevant case study for examining CBAM’s potential impacts, as the policy raises not only economic concerns but also climate justice questions regarding the ability of developing regions to transition toward low-carbon production under global regulatory pressures (Bhatia 2025; Perdana and Vielle 2022).
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Odisha's Structural Emissions Gaps and CBAM Exposure

The introduction of the EU’s Carbon Border Adjustment Mechanism (CBAM) on imported steel is likely to affect around 27% of India’s steel exports to the European Union shipments that predominantly originate from Odisha (Sen, 2023). The steel producers in Odisha heavily relies on coal-based blast furnace operations and has severe structural and financial hurdles in transitioning to low-emission hydrogen-based Direct Reduced Iron (DRI) technologies. Whereas the EU introduces CBAM as an instrument to accelerate global decarbonization, the policy framework fails to adequately account for the emission disparities and developmental barriers that constrain emerging economies like India. Over several decades, European steelmakers have benefited from public subsidies, carbon pricing mechanisms, and institutional support that have enabled them to internalize climate costs. By contrast, Indian producers, particularly those in states such as Odisha, operate under conditions of energy poverty, limited access to affordable climate finance, and insufficient technological assistance for green steel production. As a result, CBAM risks functioning less as a tool for equitable decarbonization and more as a form of green protectionism, effectively penalizing developing economies for structural constraints beyond their immediate control (Kathuria, Gupta, and  Kumar 2025).

This inequality is compounded by the inherently unilateral design of CBAM, giving little scope for bilateral negotiation or local flexibility in its implementation. That standardized embedded emissions calculations are used in the mechanism implies that it becomes excessively complex compliance regulations with additional administrative and financial burdens upon developing economy exporters (Perdana and Vielle 2022). For Odisha’s steel producers, these obligations extend far beyond simple reporting and they require costly emissions verification, lengthy documentation of supply chains operations, and often divulgence of confidential industrial information to EU regulators, both creating financial costs and competitive secrecy risks (Sen, 2023). Furthermore, Odisha's smaller steel and allied industries, such as sponge iron units and ferroalloy makers, experience severe distress in meeting these regulatory requirements due to limited institutional capacity and the lack of digital monitoring infrastructure. The absence of a national carbon pricing policy in India further deepens the competitiveness gap since the EU firms benefit from mature carbon markets and state-led decarbonization incentives. Such policy asymmetry effectively transforms CBAM into a de facto trade barrier, exacerbating existing industrial imbalances between the Global North and South. 

Climate Governance and the Principle of Differentiated Responsibilities

The economic implications of CBAM reveal deep structural imbalances in global climate governance frameworks. The policy revives age-old debates over the principles of Common but Differentiated Responsibilities (CBDR), a central pillar of the United Nations Framework  Convention on Climate Change (UNFCCC) that acknowledges while all countries share a collective responsibility for countering climate change, their obligations differ according to historical emissions and capacity to develop. Far too often, the European Union's internal interpretation of levelized carbon pricing as a central tool of global decarbonization evades  differentiated capabilities and expectations, or climate needs i.e.,  the specific obligations, mitigation targets, and compliance capacities that each country is subject to under UN climate instruments. The mechanism also harks back to the old CBDR school of argument, which itself remains at the center of the UNFCCC framework. While the European Union sees homogeneous carbon pricing as a principle for attaining common climate goals, the approach has the potential to overlook countries' varying capacities and degrees of development, hence concealing inherent differences in their capability to honor climate pledges (Perdana and Vielle 2022). Odisha's steel industry exemplifies this tension in that it is not only the largest industrial emitter but also the pillar of regional livelihoods, supporting thousands of miners working in mining, transport, and manufacturing value chains. A premature and unbuffered transition to green energy threatens to unleash social discontent, job loss, and growing regional inequality (Goldar et al. 2024). Second, the material underpinning for such a shift remains underdeveloped: critical infrastructure for green steel production i.e. green hydrogen supply chains, renewable energy grid injection, and high-efficiency furnace technologies remains  insufficiently deployed in Odisha (CEEW, 2025). Consequently, CBAM's envisioned "green industrial transition" has little resonance with the daily realities and institutional limitations of Southern economies. 

Odisha's Transition Limitations and Gaps in Domestic Response 

While the Government of India has been raising concerns about CBAM at multilateral platforms such as the WTO (“Indian Submissions in WTO - Mcommerce” 2020) and the G20, domestic policy coordination is fragmented. India's National Hydrogen Mission (2021) and steel decarbonization roadmaps in the long term are national-level projects, but they have not  cascaded to the state level sufficiently to buffer states such as Odisha from CBAM shocks (Arif, 2025). Odisha has begun to explore the development of green industrial clusters and harnessing its solar resources but system bottlenecks, ranging from policy uncertainty and high capital costs to weak grid infrastructure, are continuing to hamper progress.

Moreover, the transition is occurring in the shadow of fiscal constraints and asymmetric capacity expansion. Odisha's steel value chain, particularly small and medium enterprise (SME) units in sponge iron and ferroalloy production, do not have sufficient technological readiness and limited financial resilience to comply with the complex reporting and carbon accounting obligations under CBAM. Without targeted financial and technological support, such firms can be isolated from global value chains and are resulting in deindustrialization rather than green upgrading.

"Climate Fence"? Access to Technology and Equity in Transition 

The description of CBAM as a global climate solution should therefore be examined critically, especially from the Global South perspective. Instead of being an actual climate cooperation policy, it might instead turn out to be a "climate fence"–a regulatory weapon that protects North markets while imposing stranglehold conditions on Southern producers. This market-based solution, which aims to control emissions through carbon pricing and economically connected trade-based mechanisms, appears best on paper but in practice may end up operating as a de facto trade barrier. Imposing the EU internal carbon prices on imported manufacturers without considering development asymmetries, CBAM imposes uneven economic pressures that contradicts the ethics of justice and principles of CBDR in global climate regimes. Promises of technology transfer in international treaties are not being realized, and EU commitments under stakeholder climate finance lag behind developing countries' claimed needs. Intellectual property rights are also preventing access to necessary green technologies, sustaining an ongoing knowledge and capacity gap (Singh 2025). This creates an imbalance whereby nations such as India are made to incur transition expenses without much role in designing its patterns. In doing this, CBAM stands to replicate neocolonial vectors—exact or impose decarbonization conditions but forgo exactly those tools by which it is possible on terms that are both balanced and equitable. 

Reevaluating CBAM: Recommendations for a Collaborative Climate Shift

CBAM can be fairer if embedded in a broad climate cooperation agenda that genuinely takes into account Global South needs and potential.

• Differential tariffs or exemptions: It is necessary that these are implemented by the EU not only for LDCs but also for structurally disadvantaged and high-emission transition regions like Odisha, that are facing cumulative developmental challenges.
• Revenue redistribution: CBAM revenues should be used in a transparent way to support green technology adoption and capacity building in affected exporting countries.
• Bilateral partnerships: Forums like the EU-India Clean Energy and Climate Partnership should transcend consultative discussions and should be proactive catalysts for green investment, channeling finance into: Steel decarbonization pilot projects, Green hydrogen clusters & Public-private  R&D projects suited to Odisha's resources.
• National-level action in India: Accelerate the creation of a carbon market aligned with  international standards with a keen understanding of the national priorities, providing flexibilities and subsidies for small and medium enterprises along the regional steel and industry value chain.
• Subnational/State-level action in Odisha: This should aim to provide specific climate transition budgets and increased institutional autonomy, alongside access to multilateral climate finance to implement just transition plans.
• CBAM should be more recaliberated to support employee retraining programs. The focus should be on decentralized clean energy access without engaging in dispossession of communities.
  
  

Conclusion: From Green Protectionism to Green Solidarity  

These realignments demand a transformation in the political economy of global climate governance, one that foregrounds development justice and actively addresses asymmetries of historical responsibility and capacity. Southern countries must not remain passive recipients of externally imposed climate measures but emerge as active norm-setters in reimagining decarbonization as a pathway for inclusive growth rather than a compliance obligation.  Odisha’s industrial trajectory captures this paradox vividly: while its steel sector is carbon intensive, it also holds immense potential for green transformation if supported by targeted climate finance, enabling infrastructure, and cooperative technology partnerships. The state’s mineral wealth, industrial ecosystem, and renewable energy base make it a natural frontier for climate-smart industrial planning.

However, this potential can only materialize within an enabling international context, where instruments like CBAM are not punitive trade mechanisms but cooperative tools of global solidarity aimed at bridging, not widening, development divides. Although the EU’s Carbon Border Adjustment Mechanism has been framed as a progressive step toward global decarbonization, it risks deepening inequalities if implemented without genuine recognition of differentiated developmental realities. Odisha’s case exemplifies this broader tension, positioning CBAM as both a challenge and an opportunity for a just low-carbon transition.

At the same time, this study recognizes that CBAM’s implications transcend Odisha and India.  Similar structural barriers, limited technological access, fiscal constraints, and uneven trade exposure are evident across developing economies. Thus, the Odisha case serves as a grounded lens through which to understand these shared dynamics. In doing so, it contributes to a growing body of Global South scholarship interrogating whether carbon border measures can evolve from instruments of green protectionism into vehicles of green solidarity. Future comparative research across Southern economies can help articulate more equitable frameworks of climate cooperation and carbon governance that are context-sensitive, inclusive, and development driven.

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About the Author

Jenni Raji Jayan is currently associated with Universität Kassel, Germany where she is pursuing a Masters in Global Political Economy and Development. She hails from Kerala, India and has previously worked with several government and research institutions in India, including the Foreign Policy Research Centre. Her current research interests include global climate governance, green industrial transitions, and the political economy of low-carbon development in the Global South.

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