Comprehensive work plan in India-EU FTA to address carbon tax concerns: official
Officials confirmed that the India-European Union Free Trade Agreement text carries a dedicated annexure and a comprehensive work plan to address concerns arising from the EU's Carbon Border Adjustment Mechanism (CBAM).
The work plan rests on three elements: future flexibility for India if the EU extends any relaxation to other trading partners, support for small and medium enterprises (SMEs) facing carbon-verification and documentation burdens, and a mechanism to get EU recognition for carbon prices already paid by producers in India.
The legal review (legal scrubbing) of the free trade agreement text has been completed by both sides, with formal signing anticipated in the coming months.
A nationwide outreach programme is planned across districts to inform exporters, particularly small businesses, about the agreement's opportunities and compliance requirements, including electronic engagement tools.
The Three Pillars of the CBAM Work Plan
The CBAM annexure in the India-EU FTA is structured as a set of cooperative commitments rather than an exemption, since CBAM is an EU internal regulation that a bilateral trade treaty cannot override. The three pillars address different stages of exporter friction: future-proofing against tighter EU rules, easing compliance for smaller firms, and preventing Indian exporters from effectively paying a carbon price twice.
Key Details
- Pillar 1 (Flexibility): if the EU grants any relaxation in CBAM's future implementation to other countries, the same flexibility becomes available to India under the FTA text.
- Pillar 2 (SME compliance support): addresses difficulties SMEs face in calculating "embedded emissions" in their products and in accessing verifiers recognised by EU authorities, a process most large exporters can absorb but small firms often cannot.
- Pillar 3 (Carbon price offset): creates a channel for India to engage EU authorities so that carbon costs already incurred domestically are taken into account and offset against CBAM charges, avoiding double taxation of the same carbon cost.
These three pillars are the substantive content officials pointed to when describing the "comprehensive work plan" — they show the annexure is designed to reduce compliance cost for smaller exporters while leaving the core EU regulation untouched.
India's Domestic Carbon Price: The Carbon Credit Trading Scheme (CCTS), 2023
For Pillar 3 to work, India needs a recognised domestic mechanism that puts a verifiable price on carbon, which the EU can credit against CBAM charges. India's Carbon Credit Trading Scheme, notified under the Energy Conservation (Amendment) Act, 2022, is this domestic instrument.
Key Details
- Notified by the Ministry of Power on 28 June 2023 under Section 14AA of the Energy Conservation (Amendment) Act, 2022; it replaced the earlier Perform, Achieve and Trade (PAT) scheme and established the Indian Carbon Market.
- Energy-intensive obligated entities are assigned greenhouse-gas-intensity targets; entities that outperform their target earn tradable Carbon Credit Certificates, while those that miss it must purchase certificates or pay a penalty.
- Covers energy-intensive sectors that overlap significantly with CBAM's own coverage — iron and steel, aluminium, cement, and fertilisers — administered by the Bureau of Energy Efficiency, under the National Steering Committee for the Indian Carbon Market co-chaired by the Ministry of Power and the Ministry of Environment, Forest and Climate Change.
The "carbon price paid in India" that the FTA work plan seeks EU recognition for is, in practice, the compliance cost Indian firms bear under the Carbon Credit Trading Scheme — without a credible domestic carbon market, India would have no verifiable price to offer the EU for offset.
MSME Export Outreach: Districts as Export Hubs
The outreach programme referenced by officials builds on an existing Directorate General of Foreign Trade (DGFT) initiative that decentralises export promotion down to the district level, rather than treating trade facilitation as a national capital-city exercise.
Key Details
- The Districts as Export Hubs (DEH) initiative is run by the DGFT under the Department of Commerce, Ministry of Commerce and Industry, to identify products with export potential in each district and prepare District Export Action Plans.
- DGFT has signed outreach and training partnerships with private logistics and e-commerce players to run capacity-building sessions for MSME exporters across notified districts.
- The initiative targets first-time and small exporters — farmers, artisans, and small industries — who are the same category most exposed to CBAM's verification and compliance costs.
The "elaborate programme of outreach to almost all districts" that officials described for FTA awareness is expected to run through this existing district-level export-promotion architecture rather than as a standalone new scheme.
- India-EU FTA legal scrubbing is complete; negotiations were concluded on 27 January 2026 after talks first launched in 2007; signing is expected later in 2026, with implementation targeted for 2027.
- CBAM's definitive regime (mandatory certificate purchase) took effect from 1 January 2026 under EU Regulation (EU) 2023/956; it currently covers iron and steel, aluminium, cement, fertilisers, electricity, and hydrogen.
- India's Carbon Credit Trading Scheme, 2023 covers roughly 490 obligated entities across seven energy-intensive sectors as of 2026.
- The Districts as Export Hubs initiative has prepared draft District Export Action Plans for around 497 districts, with 112 formally notified.