The European Union is preparing to turn down India’s request for an exemption from the bloc’s incoming carbon border tax, a move that could complicate efforts to conclude a long-delayed India-EU trade agreement by the end of the year.
India had proposed applying its own export fee on carbon-intensive products — including steel, aluminium, and fertilisers — as an alternative to paying the EU’s Carbon Border Adjustment Mechanism (CBAM) levy. Delhi suggested the fee would be charged based on the value of exports rather than the specific carbon content embedded in their production.
However, EU officials say this approach would undermine CBAM’s core objective: pressuring global manufacturers to reduce greenhouse gas emissions. According to four officials familiar with the discussions, an exemption for India could also set a precedent at a time when the United States and other partners are seeking similar treatment.
EU Signals Flexibility — But No Exemption
Brussels remains open to a compromise. One official indicated the EU could reduce CBAM charges for India if New Delhi implements a domestic carbon-pricing system aligned with greenhouse gas reduction goals. The Indian government is currently consulting on whether to introduce such a scheme.
“There can be discussions on deducting any effective Indian carbon pricing from CBAM, but not on granting an exemption,” the official said.
A High-Stakes Trade Relationship
The issue is politically and economically significant for both sides. The EU is India’s largest trading partner in goods, with bilateral trade reaching $139 billion in the 2023–2024 fiscal year. Prime Minister Narendra Modi and European Commission President Ursula von der Leyen renewed their commitment earlier this year to finalize the Free Trade Agreement (FTA), partly motivated by global trade uncertainty and renewed US protectionism under Donald Trump’s return to the White House.
Both regions face heavy tariffs from the US and are under pressure from industry to diversify export markets.
India’s Wider Trade Concerns
New Delhi has argued that CBAM — which will begin collecting tariffs from January — poses a threat to its heavy industries and amounts to a trade barrier. India has also objected to new EU environmental regulations, including upcoming bans on imports linked to deforestation, though implementation has been delayed following international criticism.
In October, India’s trade minister Piyush Goyal met EU Trade Commissioner Maroš Šefčovič in Brussels to explore “landing zones” on outstanding disagreements. Both sides acknowledged that sensitive issues — such as steel, autos, CBAM, and various EU regulatory measures — require further negotiation.
Long Road to a Trade Deal
The India-EU trade negotiations began in 2007 but stalled in 2013. Talks were revived in 2022 as India pursued a broader strategy to modernize its manufacturing sector and expand its global trade footprint. In recent years, India has struck trade deals with Australia, the UK, and the European Free Trade Association, and is negotiating with the United States.
A senior EU negotiating team visited New Delhi earlier this month for additional discussions covering goods, services, rules of origin, and institutional mechanisms. Both sides reiterated their intention to accelerate the talks and aim for a “balanced trade agreement” as soon as possible.
European Commission spokesperson Olof Gill said the EU “remains focused on securing a mutually beneficial deal before the end of the year.”
