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India’s Aluminium Exports to EU Face Uncertain Future: Crisil


India’s Aluminium Exports to EU Face Uncertain Future: Crisil

According to a Crisil report, India’s aluminium industry is bracing for a significant blow as the European Union (EU) implements the Cross-Border Adjustment Mechanism (CBAM) to combat carbon emissions and achieve its goal of net-zero emissions by 2050. 

The CBAM, which will come into effect in a few months, will require importers in the EU to declare the embedded carbon emissions in goods, gradually phasing out free allowances and taxing emissions above the allowance based on the Emissions Trading System (ETS) prices. 

This move spells trouble for Indian aluminium manufacturers, who will find it increasingly unviable to export to the EU due to their high emission intensity compared to European counterparts. 

India, accounting for 6 per cent of global aluminium production, produces 4.1 million tonnes of primary aluminium annually, of which 56 per cent is exported. With integrated operations and low power generation costs due to coal-based captive plants, India has been among the lowest-cost producers of aluminium. 

However, the EU’s adoption of CBAM threatens this position. Primary aluminium production is an energy-intensive process, and the use of coal-based power plants in India results in a higher greenhouse gas (GHG) intensity compared to European counterparts. 

During the initial phase of CBAM, Indian exports to the EU are expected to remain stable as domestic manufacturers, such as Vedanta and Hindalco, have strong GHG reporting standards that fulfil the requirements until the end of 2025. However, once tariffs come into effect from 2026, Indian primary aluminium producers will be required to purchase EU-ETS certificates for emissions that exceed the free allowance, leading to increased costs. 

The emission intensity gap between Europe and India currently stands at 14-15 tCO2/t Al, which translates to an incremental cost of USD 1,500-1,600 per tonne of aluminium for Indian manufacturers. 

This cost disparity will render Indian exports unviable in the European market, especially when compared to competitors from the Middle East, Canada, Norway, and Iceland, which have significantly lower emissions. As Middle Eastern countries expand their capacities, the region’s competitors are expected to gain a competitive advantage over Indian producers after CBAM’s implementation. 

Recognising the challenges posed by CBAM, Indian manufacturers such as Vedanta, Hindalco, and NALCO have announced initiatives to reduce GHG emissions. Vedanta aims to lower absolute emissions by 25 per cent by 2030 compared to FY2021, while Hindalco targets a 25 per cent reduction in specific GHG emissions by 2025 against FY2012 levels. NALCO aligns its goals with India’s national aim of increasing the share of non-fossil power sources to 40 per cent by 2030. 

Despite these efforts, the coal-based power generation in India’s aluminium industry poses a significant obstacle to bridging the emission intensity gap. 

It is unlikely that domestic manufacturers will be able to achieve substantial reductions in emission intensity, even with a 20-25 per cent reduction by fiscal 2030. 

The implementation of CBAM will have a considerable impact on aluminium prices, with an expected 20 per cent rise due to the stark emission intensity differences between major producing countries like China and India, and Europe. 

As Europe remains import-dependent and no new capacity additions are taking place, prices will be driven higher. In response to this, Indian primary aluminium producers are likely to redirect their exports to other developing economies such as Southeast Asia, Africa, and even China to mitigate revenue shortfalls. 

India’s aluminium exports to the EU face an uncertain future as the Cross-Border Adjustment Mechanism takes effect. With the implementation of CBAM, the emission intensity gap between India and Europe becomes a significant challenge for Indian manufacturers. 

While domestic producers are striving to reduce emissions, the reliance on coal-based power generation hinders their ability to bridge the gap effectively. As a result, Indian primary aluminium producers will need to explore alternative markets to offset the potential revenue shortfall caused by CBAM. 

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