India-EU FTA May Exclude CBAM; Carbon Tax Talks to Continue Separately

Issues related to the European Union’s Carbon Border Adjustment Mechanism (CBAM) are unlikely to be included in the proposed Free Trade Agreement (FTA) between India and the EU, according to sources cited by Moneycontrol.

A government official said that concessions related to CBAM or carbon tax will be discussed separately from the ongoing FTA negotiations.

“CBAM (concessions from carbon tax) is unlikely to be part of the trade deal with the EU,” the source stated.

CBAM Overview

The European Union introduced CBAM on October 1, 2023, as part of its climate policy to achieve net-zero greenhouse gas emissions by 2050.

Under this mechanism, a 20–35% tax will be imposed on select carbon-intensive imports beginning January 1, 2026.

Also Read: HDFC AMC, Motilal Oswal Fall as SEBI Proposes Fee Overhaul

Impacted Sectors

CBAM currently covers sectors such as:

• Cement

• Iron and steel

• Aluminium

• Fertilisers

• Electricity

• Hydrogen

Among these, India’s iron and steel, aluminium, and cement industries are expected to face the most significant impact due to the carbon tax.

India’s Position

Sources said India’s upcoming carbon mechanism is expected to partly offset the cost impact of the EU’s carbon tax on exporters.

Meanwhile, Commerce Minister Piyush Goyal and EU Commissioner for Trade and Economic Security Maroš Šefčovič are expected to continue discussions on possible concessions outside the FTA framework, especially to support smaller exporters affected by CBAM.

The Road Ahead

While the India-EU FTA negotiations continue to progress, CBAM-related issues will likely remain on a separate negotiation track. The outcome of these talks will determine how Indian exporters adapt to the EU’s carbon cost regime from 2026 onward.

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