‘Simplification!’, the term echoed in almost every media quote in the press release published on 26 February 2025 by the European Commission in relation to the ‘Omnibus package’, a sweeping legislative package of proposals, intended to significantly refine EU rules including Carbon Border Adjustment Mechanism (‘CBAM’)[1]. These proposed adjustments are expected to impact reporting obligations and scope, demanding careful attention from all stakeholders involved in international trade activities in the European Union (‘EU’). By addressing the complexities faced by small and medium enterprises (‘SMEs’) and strengthening verification processes, the Omnibus Package seeks to balance environmental objectives with practical implementation challenges.
This article delves into the key changes brought about by the Omnibus Package and their implications for carbon emission reporting for Indian exporters.
Why is CBAM being simplified?
The CBAM is a mechanism under which the EU importers are required to surrender carbon certificates equivalent to the volume of the greenhouse gas (‘GHG’) emissions embedded in the goods imported into the EU.
The objective of CBAM is to prevent carbon leakage by ensuring that imports are subject to a carbon price equivalent to that applied to domestic production. This promotes fair competition and incentivizes cleaner global production.
However, the advent of the CBAM regime brought its fair share of bureaucracy and red-tapism. EU importers dealing in certain sectors covered under the scope of CBAM were subjected to reporting of carbon emissions for their imports. This led to a substantial cost being indirectly incurred by these EU importers for complying with the CBAM regulations. This meant uncertainty, paperwork, and administrative costs.
It is suggested that the implementation of CBAM increased the administrative workload and verification costs for not just EU importers but the EU Commission itself, requiring significant resources to ensure compliance and accuracy. This led to higher operational costs and the need for robust regulatory oversight.
The key changes
Below is a detailed look at each key change introduced, along with the policy rationale behind it:
* De Minimis threshold (50 tonnes/year): It is a proposed ‘mass-based exemption’ for EU importers bringing in ‘less than 50 tonnes’ of CBAM-covered goods annually, who will no longer be required to submit quarterly reports, verify emissions, or purchase CBAM certificates. This measure is likely to exempt nearly 90% of EU importers, while still covering ‘99% of total emissions’, ensuring that smaller and occasional EU importers are spared from the undue burden of CBAM compliance norms without compromising climate goals. This measure is an attempt to reduce the administrative burden for low-volume EU importers while maintaining the CBAM’s environmental coverage and integrity.
* Enhanced Anti-Circumvention Measures: Proposal to introduce more robust rules and collaboration between EU and Member States to detect and prevent evasion strategies, such as indirect routing or component misclassification. This measure is expected to uphold environmental and legal integrity by closing potential loopholes.
* Extended Reporting Deadline: Annual CBAM declarations will be due on August 31 (previously May 31), providing businesses with more time to compile data, secure verification, and purchase certificates.
* Deferred Obligation for Certificate Purchase: Although financial obligations under CBAM begin in 2026, the importers will not be required to purchase CBAM certificates until 2027. The purpose is to allow businesses to adjust financially and structurally to the new pricing mechanism.
* Digital CBAM Registry and Operator Registration: Operators outside the EU will be required to digitally register and upload/review emissions data directly into the CBAM Registry, accessible by EU importers and authorities. This measure is expected to centralize and automate emissions data handling, reducing administrative bottlenecks and errors.
* Recognition of Foreign Carbon Pricing: Carbon prices paid in third countries, will be recognized when calculating CBAM liabilities. This measure would avoid double pricing and ensure that global climate efforts are fairly accounted for.
* No Verification Requirement for Default Emissions Values: Where the EU importers use ‘default values’ for embedded emissions (instead of actual values), no third-party verification would be required. This measure would reduce verification costs.
In all, the Omnibus Package marks a thoughtful recalibration of the CBAM regulations. Firstly, it preserves the EU’s climate ambitions while acknowledging practical realities of international trade. Secondly, simplified reporting, exemptions for small EU importers, digital innovations, and alignment with foreign carbon pricing, all reflect the Commission’s effort to strike a balance between environmental effectiveness and regulatory proportionality.
As CBAM comes closer to full enforcement in 2026, these proposed reforms are likely to play a key role in shaping both business behavior and global carbon governance.
Takeaway for India and its domestic exporters
CBAM is poised to become one of the most consequential climate-trade instruments of this decade. Its objective is clear: prevent carbon leakage and level the playing field for EU domestic industries subject to stringent climate regulations. While the recent Omnibus Package, adopted in February 2025, introduces crucial simplifications and transitional safeguards, it also brings to light several structural loopholes in the execution of CBAM. These gaps are in relation to limited product coverage, de minimis threshold and splitting of consignments by big players through low volume imports by their entities/subsidiaries, inconsistencies in recognition of foreign carbon pricing, et cetera.
Further, there are certain structural and long-term challenges before India and Indian exporters which need to be addressed:
* Absence of Carbon Pricing Framework: Without a national carbon tax or emissions trading system, Indian exporters cannot claim carbon cost equivalence, thereby increasing their effective liability under CBAM. The Indian parliament had passed the Energy Conservation (Amendment) Bill in December 2022. This led to the setting up of a domestic carbon credit trading scheme in 2024. However, no further steps have been taken for the implementation of the same.
* Weak monitoring, reporting, and verification (‘MRV’) Infrastructure: Many Indian companies lack standardized MRV capabilities, making it difficult to demonstrate actual emissions and avoid the use of high default values.
* Exposure to Future Product Expansion: CBAM’s current scope is limited but is likely to expand to cover more downstream and complex products. Indian exporters in sectors such as engineering goods and auto-components must prepare for ‘eventual inclusion’.
* Risk of Competitive Disadvantage: Without policy support, Indian firms may struggle to match the carbon efficiency and documentation capabilities of peers from countries with mature carbon governance systems.
Thus, at a policy level, India must also accelerate domestic carbon pricing reforms, develop a national emissions registry, and include CBAM in the ongoing FTA negotiations with the EU to ensure smoother alignment. As global trade becomes increasingly climate-linked, Indian industry and government must act in cohesion to secure competitiveness in a carbon-costed world.
[The authors are Partner and Associate, respectively, in Supply Chain practice at Lakshmikumaran & Sridharan Attorneys, Mumbai]
[1] European Commission. (2025, February 26). Commission simplifies rules on sustainability and EU investments, delivering over €6 billion in administrative relief. Official Website of European Commission. Retrieved April 7, 2025, from https://ec.europa.eu/commission/presscorner/detail/en/ip_25_614.
