EU’s new carbon tax to kick in amid India’s attempts for carve-outs in FTA talks
The EU’s CBAM is designed to ensure that imported goods carry a carbon price equivalent to that of items produced within the EU.
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India is counting on its proposed free trade agreement (FTA) with the EU — now in the last lap of negotiations — for flexibilities and carve-outs on carbon taxes for carbon-intensive products, which are set to kick in under the Carbon Border Adjustment Mechanism (CBAM) on January 1, 2026.
Many Indian steel and aluminium exporters may have to cut prices by 15–22 per cent so that EU importers can use that margin to pay the CBAM tax, according to estimates by research body Global Trade and Research Initiative.
“From January 1, the EU’s CBAM will be embedded into every price negotiation. EU buyers will assess whether steel imported from India — including the carbon cost — remains competitive against the EU or third-country suppliers. If it does not, pressure will emerge through price cuts, carbon-linked contract clauses, or outright supplier substitution,” according to Ajay Srivastava from GTRI.
The EU’s CBAM is designed to ensure that imported goods carry a carbon price equivalent to that of items produced within the EU. By accounting for embedded emissions, the system aims to level the playing field for domestic companies already subject to the bloc’s Emissions Trading System (ETS).
However, the impending carbon tax — targeting steel, aluminium, cement, fertiliser, hydrogen, and electricity starting January 1, 2026 — could significantly impact Indian exports.
Cost burden
The administrative burden and compliance costs associated with CBAM also present a substantial challenge for Indian MSMEs. “From 2026, independent verification of emissions data becomes mandatory. Only EU-recognised or ISO 14065–compliant verifiers will be accepted. The process will resemble a financial audit, involving document review, emissions validation, and formal certification,” the GTRI report highlights.
New Delhi has been continuously pushing Brussels to address the issue of EU standards, particularly the CBAM and the EU Deforestation Regulations (the implementation for which has now been postponed), as these could take away any market access benefit it secures through the proposed FTA with the bloc.
“India is continuing to push for flexibilities on CBAM, EUDR and other standards and regulatory measures in the FTA negotiations. Talks are on,” another source tracking the matter said.
India and the EU have been hoping to wrap up the FTA negotiations before the visit of EU leaders Ursula von der Leyen and António Costa to India to participate as chief guests for the country’s Republic Day celebration on January 26. The India‑EU Summit is also being planned simultaneously.
Published on December 31, 2025
