As India and the European Union (EU) prepare for their eighth round of Free Trade Agreement (FTA) negotiations in Brussels from June 24 to 28, discussions on the Carbon Border Adjustment Mechanism (CBAM) have taken center stage. The CBAM, a regulatory measure by the EU, seeks to impose a ‘fair’ price on carbon emissions associated with the production of carbon-intensive goods from non-EU countries, commencing January 1, 2026.
In anticipation of these levies, India is actively engaging with the EU to devise mechanisms that would comply with CBAM requirements. An Indian official underscored the importance of these talks, stating, “We are collaborating with the EU to establish robust mechanisms under CBAM. India has introduced a carbon trading platform; thus, we must determine the appropriate methods for carbon pricing. Additionally, we are examining other measures to reduce carbon content, accreditation issues for carbon verifiers, and potential exemptions or benefits for Micro, Small, and Medium Enterprises (MSMEs).”
The CBAM issue was a focal point during a recent virtual meeting between senior Indian and EU officials on May 7, where challenges related to CBAM were thoroughly discussed. The agenda encompassed a broad range of policy areas including market access for goods and services, investment, government procurement, rules of origin, sanitary and phytosanitary measures, technical barriers to trade, energy and raw materials, trade and sustainable development, and intellectual property rights.
An official involved in the discussions noted, “The EU is showing a greater willingness to consider India’s perspective more favorably now. They have developed a better understanding of our concerns. This shift in attitude is also influenced by the broader geopolitical narrative, particularly in the context of the China-plus strategy in FTA negotiations.”
The CBAM regulation aims to equalize the carbon costs borne by EU companies, which already comply with the EU’s Emission Trading System (ETS), by levying higher import duties on specified carbon-intensive products. This measure supports the EU’s commitment to achieving net-zero carbon dioxide emissions by 2050. Key products affected by CBAM include cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. In India, sectors such as iron and steel, and aluminum, followed by cement, are anticipated to be the most impacted.
India’s proactive stance in these negotiations highlights its strategic approach to balancing environmental commitments with economic interests, aiming to mitigate the impact on its industries while aligning with global sustainability goals.