How the India–EU FTA Frames the EU’s Carbon Border Tax for Indian Exporters

The India–European Union Free Trade Agreement (India–EU FTA) incorporates a specific Annex on Carbon Border Measures that frames how the European Union’s Carbon Border Adjustment Mechanism (CBAM), often referred to as a carbon border tax, will interact with India’s exports while remaining an EU-wide regulatory instrument. India and the EU have positioned this framework within their broader commitment to deepen a balanced and mutually beneficial trade and climate partnership.

CBAM: The EU’s system for pricing carbon on high-emission imports to ensure fair competition with EU industries.

CBAM’s Role in EU Trade Policy

CBAM is the EU’s system that charges a carbon price on certain high-emission imports so they compete fairly with products made in the EU under its emissions rules. It initially covers products such as cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.

The mechanism is being introduced in phases, starting with a transition period and later requiring importers of these products to pay the applicable carbon charges. EU documents say the system aims to prevent carbon leakage and ensure imported goods are treated the same as those produced within the EU.

Annex on Carbon Border Measures in the FTA

In a written reply to Parliament, the Government of India confirmed that the India–EU FTA contains an Annex on Carbon Border Measures agreed between the two sides. According to this official statement, the Annex is aimed at enhancing cooperation and support between India and the EU to strengthen efforts to reduce greenhouse gas emissions.​

The reply also says that the Annex establishes a Technical Dialogue where India can discuss issues with the European Union, such as how emissions are verified and how default values are set under the Carbon Border Adjustment Mechanism (CBAM). It also records that India will receive at least the same CBAM-related benefits or flexibilities given to any other country under a “most-favoured nation” clause.

India and EU build a carbon trade framework under CBAM, keeping EU rules intact while opening technical dialogue and cooperation with India.

Practical Implications for Indian Exporters

For exporters in India in sectors covered by the Carbon Border Adjustment Mechanism (CBAM), the EU rule will continue to apply to imports of certain carbon-intensive goods from all non-EU countries. The Annex on Carbon Border Measures therefore focuses on cooperation, technical discussions, and support between India and the European Union, rather than changing the CBAM law itself.

Through the Technical Dialogue, India will have a formal channel to discuss CBAM rules—such as calculation methods, verification processes, and data requirements—with the European Union under the Carbon Border Adjustment Mechanism (CBAM). It may also help the EU accept India’s own systems for measuring and reporting emissions if they align with EU requirements. The agreement also includes a most-favoured nation clause, meaning that if the EU gives any CBAM-related benefits or flexibility to another country, India will receive the same treatment.

Within this framework, both sides link trade integration with climate objectives, combining an ambitious FTA with ongoing technical work on CBAM and decarbonisation of industry. This positions CBAM and the new Annex as key elements of a rules‑based approach to managing carbon‑related trade measures in the India–EU relationship.