Europe’s carbon border tax fuels green power rush amongst Indian aluminium & steel producers

The push to minimise emissions is not just limited to major aluminium and steel companies, infact their suppliers are also under pressure to reduce emissions across the supply chain. Renewable energy providers report that demand has surged beyond available capacity, with upcoming production already sold out for the next few years.

About CBAM

As part of global efforts to combat climate change, the European Union has introduced the Carbon Border Adjustment Mechanism (CBAM), a crucial measure aimed at regulating the import of carbon-intensive products, including aluminium. This mechanism imposes a tariff based on the emissions generated during manufacturing. The CBAM is scheduled to take effect in January 2026. In anticipation, the European Union has already begun requesting carbon emissions reports for goods exported to the EU.

Companies working towards renewable energy deals

Indian aluminiu and steel companies are scrambling to secure renewable energy deals to lower their net carbon emissions, aiming to avoid penalties under Europe's impending Carbon Border Adjustment Mechanism (CBAM).

"Due to constraints related to land availability and transmission infrastructure, the earliest solar and wind projects can be delivered is in 2026. This demand has led to early commitments for future projects," said Vineet Mittal, chairman of Avaada, a renewable energy company.

Renewable energy companies report that demand significantly exceeds their current production capabilities, and upcoming capacity for the next few years is already fully booked. Vineet Mittal, chairman of Avaada, estimated the current demand-supply gap to be around 10 gigawatts. According to the Union Ministry of New and Renewable Energy, India's total operational wind and solar energy capacity stands at approximately 134 gigawatts.

Hindalco’s green plan

Aluminium producer Hindalco plans to bring 300 megawatts of renewable energy online by next year. The Vedanta Group, which operates India's largest aluminium and zinc manufacturing facilities, has established a subsidiary, Serentica, to meet its renewable energy needs. In anticipation of the CBAM levies starting in 2026, Hindustan Zinc has introduced a low-emission zinc line specifically for steelmakers. The company has set up a dedicated production line powered by round-the-clock renewable energy from Serentica to produce this low-emission zinc, a crucial additive in steelmaking.

Sunsure – a renewable energy producer

At Sunsure, a renewable energy producer, 15 per cent of the customer base consists of companies concerned about the EU's carbon border tax. Shashank Sharma, the founder and CEO of Sunsure, notes that the drive for decarbonisation, combined with a shortage of renewable energy suppliers for commercial and industrial (C&I) customers like metal companies, has resulted in a significant short-term capacity shortage.

At Sunsure, 90 per cent of the upcoming 1-gigawatt capacity over the next 15 months is already sold out, according to Shashank Sharma. Experts highlight a particularly high demand for round-the-clock (RTC) green power. Since renewable energy from solar and wind sources is intermittent, additional infrastructure like battery or pumped-hydro storage systems is needed to ensure an uninterrupted power supply. Avaada’s Mittal noted that RTC renewable power will remain in short supply until at least 2027 when many under-construction pumped-hydro storage plants are expected to become operational. Until then, RTC power will primarily depend on costly battery storage systems.

CBAM to begin monitoring carbon emissions

The Carbon Border Adjustment Mechanism (CBAM) will begin monitoring the carbon emissions embedded in products imported into the European Union and the UK. It will impose a tax on emissions exceeding European companies' baseline set. These levies, which will take effect in January 2026, will initially apply to six sectors: iron and steel, aluminium, cement, fertilisers, electricity, and hydrogen.

"This trend is leading to businesses rushing to secure capacities from dependable renewable energy developers and may lead to an increase in tariffs. Consequently, few developers are able to promise power supply to C&I customers until at least 2025-26," added Vineet Mittal.