India-EU FTA offers no relief from EU’s carbon border tax as CBAM stays

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• India-EU trade deal lacks exemption from EU's Carbon Border Adjustment Mechanism
• Indian steel, aluminum, cement exports to EU will face CBAM costs.
• EU to give €500M for India's climate action, excluding CBAM.

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India has not secured any exemption or rollback from the European Union’s Carbon Border Adjustment Mechanism (CBAM) even as the two sides concluded negotiations on a free trade agreement, leaving a major climate-linked trade cost for carbon-intensive sectors unresolved.

CBAM will continue to apply to Indian exports under the terms of the India–EU trade deal, with the agreement providing cooperation and transition support, but no dilution or suspension of the EU’s carbon border levy.

Commerce Secretary Rajesh Agrawal said the EU has committed that any flexibility it introduces under CBAM for any partner country globally will automatically flow to India.

Union commerce and industry minister Piyush Goyal said the EU has introduced new standards on steel, adding that both sides have agreed “in good faith” to work together to resolve the issues in the coming months.

Officials have indicated that while India has ensured most-favoured-nation treatment under the FTA, this does not translate into immediate relief from CBAM-linked costs.

CBAM had been one of India’s hardest-fought issues in the negotiations, with Commerce and Industry Minister Piyush Goyal at one stage signalling that India could respond with retaliatory action if the EU’s carbon tax undermined its exporters.

What India has secured — and what it has not

Commerce ministry officials said the FTA ensures that any CBAM concessions the EU may grant to other trading partners in the future will also apply to India, in line with most-favoured-nation treatment.

“CBAM is a horizontal regulation applicable to all countries, but under the FTA we have agreed to set up a technical dialogue to address pathways for Indian industry to access the EU market despite the regulation. We will also work together to ensure adequate CBAM verifiers in India and to align the technical processes for implementing CBAM in both economies,” Agrawal said.

“There is also an understanding that India’s future carbon trading system will be recognised under CBAM, so that carbon costs paid domestically by Indian companies are accounted for," the commerce secretary said.

What is CBAM and why it matters?

The Carbon Border Adjustment Mechanism is the EU’s policy to impose a carbon price on certain imported goods to align them with the costs faced by European producers under the bloc’s emissions trading system.

Under CBAM, importers into the EU must measure, report and verify the carbon emissions embedded in their products, and eventually pay a levy reflecting those emissions. The mechanism is aimed at preventing carbon leakage, where production shifts to regions with weaker climate regulations.

CBAM was fully implemented from January 1, 2026, following a transition phase that began in October 2023.

Impact on Indian exports

For India, CBAM poses a direct challenge to exporters of carbon-intensive products such as steel, aluminium, cement and fertilisers, which account for a significant share of shipments to the EU.

With no carve-out under the FTA, Indian exporters will have to factor in additional carbon-related costs when accessing EU markets, potentially affecting price competitiveness unless firms adopt cleaner production processes or are able to demonstrate lower emissions intensity under EU rules.

The trade agreement provides for dialogue and technical engagement on emissions measurement, verification and carbon pricing recognition, but does not shield Indian exports from the levy itself.

For Indian industry, the outcome underscores a key reality of the India–EU trade pact: while tariff barriers have been lowered and market access expanded in several areas, climate-linked trade measures such as CBAM remain a binding constraint, requiring exporters to accelerate their transition towards lower-carbon production.

€500-million EU support for climate and sustainable trade

Alongside the trade deal, the European Union has proposed €500 million in support over the next two years to assist India’s efforts on climate action and sustainable trade.

The funding is intended to help Indian industry reduce greenhouse gas emissions, adopt cleaner technologies and strengthen cooperation on climate-linked trade measures. A dedicated EU–India climate cooperation platform is also expected to be set up as part of this effort.

However, the proposed financial support is separate from CBAM and does not amount to an exemption or delay in the application of the carbon border levy.