India-EU FTA has comprehensive provisions to address CBAM issues: Official
Officials stated that the India-EU Free Trade Agreement contains provisions intended to address concerns arising from the European Union's Carbon Border Adjustment Mechanism (CBAM)
Under CBAM, the EU imposes a carbon-linked charge on imports of goods such as steel, aluminium, fertiliser and cement once their embedded manufacturing emissions cross a specified threshold
The FTA's carbon-related text does not alter CBAM's substantive obligations — the European Commission has separately clarified there is no commitment to change CBAM rules or grant India preferential treatment under the mechanism
CBAM's "definitive period," under which the certificate-based charge actually applies, began on 1 January 2026, directly affecting Indian exporters of the covered goods
Indian industry has flagged that domestic carbon-accounting frameworks do not currently align with the EU's methodology, risking higher-than-actual carbon costs being assigned to Indian exports
Carbon Border Adjustment Mechanism (CBAM)
CBAM is an EU import levy that puts a carbon price on select imported goods equivalent to the price EU producers already pay under the EU Emissions Trading System (EU ETS), aiming to prevent "carbon leakage" — the risk that EU industries relocate production, or emissions-intensive production is imported, to jurisdictions with weaker carbon pricing. It was established under EU Regulation (EU) 2023/956.
Key Details
- Transitional (reporting-only) phase ran from October 2023 to December 2025; the definitive period, under which importers must actually purchase CBAM certificates, began 1 January 2026
- Initially covers six categories: iron and steel, aluminium, cement, fertilisers, hydrogen, and electricity; a single mass-based exemption threshold of 50 tonnes/year was later introduced under Regulation (EU) 2025/2083
- The certificate price is linked to the weekly average auction price of EU ETS allowances; the first certificate sales begin February 2027, and the first annual surrender/reconciliation for 2026 imports is due by September 2027
- The European Parliament's Environment Committee has proposed extending CBAM from 2028 to roughly 180 additional downstream steel and aluminium products, along with tighter rules on scrap-based production and anti-circumvention
CBAM's charge on steel, aluminium, fertiliser and cement is precisely the mechanism the India-EU FTA is being asked to "address" — but because CBAM is an EU internal regulation (not a tariff), a bilateral trade agreement cannot unilaterally exempt Indian goods from it without an EU-side legislative change, which the FTA text does not make.
India's Carbon Pricing Framework vs CBAM's Default Methodology
India's principal industrial carbon-efficiency instrument is the Perform, Achieve and Trade (PAT) scheme, a market-based mechanism under the Energy Conservation Act, 2001 that sets energy-efficiency (not absolute emissions) targets for designated large energy-intensive units, allowing trade of Energy Saving Certificates. Because PAT measures energy intensity rather than certified embedded carbon per EU-compatible methodology, CBAM does not currently recognise it as equivalent carbon pricing.
Key Details
- PAT operates under the Energy Conservation Act, 2001 (amended 2022 to enable a domestic carbon credit trading scheme, the Carbon Credit Trading Scheme, 2023, under the Bureau of Energy Efficiency)
- CBAM requires EU-verified, product-specific "embedded emissions" data; where exporters cannot supply verified actual emissions, CBAM applies higher EU-set default values, which can overstate the true carbon footprint of efficient Indian producers
- This mismatch means Indian exporters may face CBAM charges even where a plant's actual per-tonne emissions are lower than the EU default benchmark for that product category
The "comprehensive provisions" referenced by the official likely relate to cooperation/dialogue mechanisms on emissions data recognition rather than an exemption — the underlying gap between India's efficiency-based carbon regime and the EU's emissions-based CBAM methodology remains a live trade-policy issue independent of the FTA.
India-EU Free Trade Agreement — Type and Status
A Free Trade Agreement (FTA) primarily eliminates or reduces tariffs on goods between parties, distinguished from a Comprehensive Economic Partnership Agreement (CEPA, e.g., India-UAE, 2022) which also covers services, investment, and regulatory cooperation more extensively, and from a Trade and Technology Council (TTC), which is a non-binding dialogue mechanism.
Key Details
- India-EU FTA negotiations began in 2007, were suspended around 2013, and resumed in 2022; negotiations concluded and the agreement was signed on 27 January 2026 in New Delhi, after nearly two decades of talks
- The full agreement text was published shortly after signing; the deal requires ratification on both sides before entering into force, with India's ratification process expected to be faster than the EU's roughly year-long process, making entry into force likely only in early 2027
- The India-EU FTA is described as the largest such agreement either side has concluded in terms of the size of the combined market
Because the FTA is signed but not yet ratified or in force, its CBAM-related annex is a negotiated text whose practical effect on Indian exporters will only be tested once the agreement takes legal effect in 2027 — until then, CBAM's 2026 definitive-period obligations apply to Indian exporters regardless of the FTA.
- CBAM legal basis: EU Regulation (EU) 2023/956; definitive period began 1 January 2026
- CBAM-covered sectors (current): iron and steel, aluminium, cement, fertilisers, hydrogen, electricity; mass exemption threshold 50 tonnes/year (Regulation (EU) 2025/2083)
- First CBAM certificate sales: February 2027; first certificate surrender deadline: 30 September 2027 (for 2026-year imports)
- India-EU FTA: negotiations launched 2007, concluded and signed 27 January 2026; expected to enter into force in early 2027 pending ratification
- India's domestic efficiency scheme relevant to carbon accounting: PAT scheme under the Energy Conservation Act, 2001
- Proposed CBAM expansion: to approximately 180 additional downstream steel/aluminium products from 2028 (European Parliament Environment Committee proposal)