EU–India Deal Keeps Carbon Border Levy in Place Despite Trade Pact

The European Union and India concluded extensive trade negotiations, finalising a landmark free trade agreement on 27 January 2026, but retained a cornerstone of the EU’s climate policy - the Carbon Border Adjustment Mechanism (CBAM) - in its existing form. Despite India’s concerns that the tariff could disadvantage its exports, Brussels confirmed that no special exemptions will be granted under the trade deal, reaffirming the bloc’s non-discrimination approach to climate-linked trade measures.

CBAM is a policy designed to impose a carbon-related charge on certain imported goods that have high embedded emissions, such as steel, cement and aluminium.

It aims to level the playing field between domestically produced goods - which face carbon pricing under the EU’s emissions trading system - and imports from regions where carbon costs are lower or unregulated.

This mechanism became fully operational in January 2026, reflecting the EU’s commitment to integrating climate objectives into trade policy.

Indian officials expressed concern that the mechanism’s continued application could undermine the economic benefits of the new trade agreement for key industrial sectors exposed to carbon costs.

While the pact includes provisions for ongoing dialogue between Brussels and New Delhi to address technical challenges presented by CBAM, it does not remove or delay the levy itself.

Instead, the EU has pledged cooperation and climate support measures aimed at helping Indian producers transition toward lower emissions - including targeted funding and potential technical assistance.

The agreement also includes elements expected to expand market access and reduce traditional tariffs on a wide range of goods, but climate-linked trade measures remain a significant point of divergence. Analysts note that ongoing cooperation on emissions measurement and carbon pricing recognition could help align long-term sustainability objectives, but immediate competitive pressures for carbon-intensive exports persist under the current framework.

CBAM surviving significant trade-pact negotiations signals how central the mechanism is to EU industrial-decarbonisation strategy, and it directly affects sourcing planning for CBAM-exposed sectors on both sides of the deal. Our supply-chain-and-operations and market-intelligence teams help clients evaluate what CBAM continuity means for sourcing and disclosure.