India opposes the EU’s Carbon Border Adjustment Mechanism (CBAM), citing trade and compliance concerns. As FTA talks continue, its impact on Indian exports remains critical. While countries such as China, Russia, Brazil, and South Africa have already challenged the European Union (EU) at the World Trade Organization (WTO) over its Carbon Border Adjustment Mechanism (CBAM), India has yet to formally take legal action. Instead, both sides remain engaged in discussions concerning a Free Trade Agreement (FTA), an investment pact, and a Geographical Indication (GI) treaty.
However, India’s concerns regarding CBAM remain a contentious issue, especially as the EU plans to impose carbon tariffs of up to 30% on imports of carbon-intensive products, including steel and aluminium, starting in 2026. During the two-day visit of European Commission President Ursula von der Leyen and 21 EU Commissioners, beginning Thursday, India is expected to strongly voice its objections to CBAM.
India’s Position on CBAM
Finance Minister Nirmala Sitharaman and Commerce and Industry Minister Piyush Goyal have consistently criticized CBAM as an ‘unfair’ trade measure and a violation of the Common but Differentiated Responsibilities (CBDR) principle. The CBDR framework, a cornerstone of international climate negotiations, acknowledges that while all nations must contribute to mitigating climate change, their responsibilities vary based on their level of economic development. According to Indian officials, CBAM raises two major concerns:
- Violation of CBDR Principles – India argues that linking environmental concerns to trade policies contradicts the CBDR principle and could disproportionately impact developing economies.
- Data and Compliance Burden – CBAM requires exporters to submit over 1,000 data points to EU authorities for compliance. Many small and medium manufacturers in India lack the capacity to meet such stringent reporting requirements, raising concerns about privacy and operational feasibility.
Despite these issues, the EU maintains that CBAM aligns with WTO rules and is simply an extension of its domestic climate policies to international trade. EU officials have expressed a willingness to engage with India and other affected countries to address their concerns.
Trade Negotiations and CBAM’s Potential Impact on Indian Exports
Negotiations between India and the EU are primarily being conducted through the Trade and Technology Council (TTC), which includes a separate forum dedicated to discussions on CBAM-related challenges. In ongoing FTA talks, India is advocating for special concessions for its Micro, Small, and Medium Enterprises (MSMEs) to mitigate the impact of trade regulations. However, Indian officials fear that any trade benefits negotiated under the FTA could be offset by the burden imposed by CBAM, particularly since the EU retains the flexibility to expand the scope of products subject to carbon tariffs.
Although CBAM is not officially on the agenda for the upcoming meetings, an EU official acknowledged that India has consistently raised concerns about its potential economic repercussions. The EU has expressed readiness to clarify aspects of CBAM’s implementation and address concerns raised by affected trade partners.
Economic Implications for India
CBAM entered its transition phase on 1 October 2023, requiring exporters to begin reporting emissions-related data. The tax itself will take effect on 1 January 2026. Given that India exports over 15% of its total goods exports to the EU, amounting to $75 billion in 2022-23, the impact of CBAM could be significant.
According to the Global Trade and Research Institute (GTRI), CBAM is expected to lead to a 20–35% tax on specific metal exports, particularly iron, steel, and aluminium products. Additionally, a report by the Council on Energy, Environment, and Water (CEEW) warns that other sectors could also be affected by sustainability-focused EU regulations. These include:
- Textiles
- Chemicals
- Selected consumer electronics
- Plastics
- Automobiles
Collectively, these sectors represented 32% of India’s exports to the EU in 2022, valued at approximately $27 billion. If additional sectors are added under CBAM, the total value of at-risk exports could rise to $37 billion, or 43% of India’s exports to the EU as of 2022.
The Road Ahead
As India continues its FTA negotiations with the EU, CBAM remains a key sticking point. While the EU argues that its carbon tax is necessary to meet climate goals, India maintains that such unilateral measures unfairly disadvantage developing nations.
Conclusion:
As India and the EU engage in FTA negotiations, CBAM remains a significant hurdle. While the EU views it as a necessary climate action, India argues it disproportionately affects developing economies and undermines trade concessions. With Indian exports—especially metals and industrial goods—at risk, policymakers must find a balanced solution that supports sustainability without imposing undue trade restrictions. The upcoming discussions between Indian and EU officials will be crucial in determining whether India seeks WTO intervention or negotiates a compromise. Addressing these concerns effectively will shape the future of India-EU economic relations and influence global trade dynamics. If you need any legal expert support consult our team of lawyers at Vakilsearch.
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