India-EU FTA talks focussed on carbon tax impact on industry as mechanism pans out
The first carbon-tariff system, the EU Carbon Border Adjustment Mechanism (CBAM).
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wutwhanfoto
India is in discussions with the EU on minimising the impact of its carbon border tax on the country’s industry and would consider incorporating appropriate provisions in the India-EU Free Trade Agreement to safeguard interests, sources have said.
“In the ongoing negotiations on the India-EU FTA, India is continuously discussing the impact of the EU’s carbon border adjustment mechanism (CBAM) on the Indian industry as it pans out. The bloc is still in the process of finalising the methodology for calculating and imposing the carbon taxes. Wherever interests are getting affected, the government is ready to step in,” a source told businessline.
The CBAM is a system introduced by the EU to ensure that a price has been paid for the embedded carbon emissions generated in the production of certain goods imported into the EU. The idea is to create a level playing field with EU companies which account for their carbon emission through the bloc’s Emission Trading System (ETS).
Exports may be hit
The carbon tax, to be imposed in the first phase on six items including steel, aluminium, cement, fertilizer, hydrogen and electricity from January 1, 2026, could serve a blow to India’s exports of the items to the bloc. Meeting the regulatory norms and the compliance costs under the CBAM is also proving difficult for Indian MSMEs.
The EU has already announced that it will simplify the regulatory norms for its MSME importers and much of it is already underway.
“India has been consistently expressing its concern on effect of the CBAM regime on MSMEs, and there is an effort on the EU’s side to address it. They have done some exemptions for MSMEs. They have done some simplification in terms of reporting requirement. And they have also given an undertaking that given the feed back from their own industry, they would do further,” the source said.
Awaiting fineprint
As the EU is yet to come out with the details of the CBAM methodology, India is waiting for the final fineprint. “The basic formula for calculating carbon emissions is available. But within the formula, there is a need for detailing and the EU is still working on that. After they come out with the finer rules, we will do a final assessment of its impact on Indian industry and act accordingly,” the source said.
New Delhi is apprehensive that the benefits of the India-EU FTA, once the ongoing negotiations conclude and the pact is in place, may get partly nullified due to the effect of the CBAM taxes and is, therefore, watchful. “We do not yet know how the CBAM is going to manifest. But in the FTA talks, the matter is being discussed regularly as the mechanism is panning out. Action may be taken within the FTA framework if required,” the source said.
Published on September 22, 2025
