India seeks easier access to EU steel scrap to soften carbon tax impact

“On the issue of the India-EU free trade agreement (FTA), it was mentioned that the CBAM measures of the EU would necessitate the use of arc furnace technology with the sourcing of steel scrap. However, it was difficult to source scrap from the EU due to its recycling policy, and hence this would be a non-tariff barrier,” the Engineering Export Promotion Council (EEPC) flagged during a Board of Trade (BoT) meeting under the Union Commerce Ministry on November 25 last year.

The Government has plans to ramp up steel production using steel scrap with the arc furnace technology under the “green steel initiative”.

CBAM is imposed by the EU on goods produced in other countries by processes that lead to greater carbon emissions than domestic European manufacturers are allowed to emit. Think tank Global Trade Research Initiative (GTRI) estimates that CBAM will hurt India’s exports of metals such as iron, steel and aluminium products to the EU and will translate into a 20-35 per cent tax on select imports into the EU.

However, under the green steel initiative, the Government aims to increase the share of scrap in steelmaking to 50 per cent by 2047. Steel production via electric arc furnace and induction furnace routes using scrap can reduce carbon emissions by 1.5 metric tonnes per ton of scrap used and cut energy consumption by 75 per cent, compared to traditional blast furnace methods using virgin iron ore, according to the World Steel Association.

According to a report by Indian Council for Research on International Economic Relations (ICRIER), despite environmental and economic benefits, scrap currently constitutes only 20 per cent of India’s steelmaking feedstock, constrained by limited domestic availability of approximately 25 Million Metric tonnes (MMt) annually.

“In the face of intensifying non-tariff barriers and climate-linked trade instruments such as the Carbon Border Adjustment Mechanism (CBAM), hard-to-abate sectors like steel are under unprecedented pressure to decarbonise. Scrap steel is central to this transition, yet India’s constrained access to quality scrap remains a critical bottleneck,” said the report of May 2025.

India’s demand for easier imports of scrap comes at a time when global availability of scrap is projected to decline and import dependency is rising. Official data showed that India’s ferrous scrap imports more than doubled in 2023 compared to 2013.

The Boston Consulting Group (BCG) projects that by 2030, the EU scrap exports could decline by 25 per cent. In 2021 alone, 76 export restrictions reduced global scrap exports by nearly 8 per cent. Export taxes of up to 40 per cent and 15 per cent, imposed primarily by China and Russia, respectively, have been key in restricting scrap exports. With the UK and USA alone accounting for nearly one-third of global scrap steel trade, the concentration of supply reinforces India’s vulnerability to such policy shifts, ICRIER said.

As the world’s second-largest scrap importer, India sources scrap primarily from developed countries like the US, the UK and EU. Many of these nations are now restricting exports to prioritise their own decarbonisation goals, and globally, the availability of scrap for trade is expected to tighten significantly by 2030, as major exporting countries consume more scrap domestically.

A European Commission (EC) report titled ‘A European Steel and Metals Action Plan’ indicated that the EU has been pushing for enhancing circularity to decarbonise the metal industries and curbing the diminishing volume of scrap. EC says ferrous scrap exports have more than doubled over the last few years, reaching a maximum of 19.43 million tonnes in 2021.

To reverse this trend, the first objective is to stimulate demand by increasing the use of such resources in the EU, and to achieve this, scrap should be better sorted and treated to ensure its usability in high-quality applications such as automotive, the EC report said.