New Delhi: India has locked in most-favoured-nation protection under the European Union’s Carbon Border Adjustment Mechanism (CBAM) through the India–EU Free Trade Agreement (FTA), shielding Indian exporters from discriminatory carbon tariffs, while simultaneously aligning the deal around green hydrogen cooperation and clean energy trade integration as pillars of the future economic partnership, according to a note by Climate Trends.
CBAM, the world’s first carbon border tax, is currently in its transitional phase and is estimated to pose an annual cost risk of $2–4 billion to Indian exporters when fully implemented in 2026. Under the FTA, India has secured a most-favoured-nation clause to ensure it is not treated less favourably than other countries under EU carbon rules. The agreement also provides for cooperation on recognising India’s emerging carbon pricing and verification systems, along with financial support to help Indian exporters meet new climate-linked trade requirements and cut emissions.
Alongside carbon safeguards, the FTA places green hydrogen at the centre of India–EU climate and business cooperation. Climate engagement is already embedded in existing frameworks such as the Clean Energy and Climate Partnership (CECP), signed in 2016, which coordinates joint work on renewables, energy efficiency and clean hydrogen. Both India and the EU have identified green hydrogen as central to their decarbonisation pathways, with India positioning itself as a potential exporter to Europe.
India highlighted this ambition at European Hydrogen Week in Rotterdam last year, underscoring plans backed by a growing domestic electrolyser manufacturing base. India is targeting $10 billion in foreign direct investment to build 10 GW of electrolyser capacity by 2030, a scale aligned with the EU’s future hydrogen import requirements and a key pillar of India’s clean manufacturing strategy.
Backing the trade and climate framework, the European Investment Bank has committed €2 billion towards climate-resilient infrastructure in India through the Coalition for Disaster Resilient Infrastructure, signalling the EU’s willingness to support trade commitments with patient capital and long-term climate finance.
Beyond climate-linked provisions, the FTA is expected to double bilateral trade to €248 billion within five years from the current €124 billion. Commerce Minister Piyush Goyal and European Commission President Ursula von der Leyen have described the agreement as the “mother of all deals.” The deal will grant preferential market access for 99 per cent of Indian goods exported to the EU and open opportunities for skilled and semi-skilled Indian workers. The government estimates annual savings of €4 billion and tariff reductions of up to 10 per cent on Indian goods worth $33 billion.
The agreement comes at a time of intensifying global trade fragmentation, where tariffs, carbon taxes and industrial policy increasingly shape market access. The FTA is seen as providing India insulation against potential fresh U.S. tariff actions under a second Donald Trump administration, while securing the EU long-term access to India’s fast-growing consumer and industrial market in the Indo-Pacific.
The deal is projected to boost Indian exports by up to $50 billion by 2031 through services and diversified markets, reinforcing India’s “China Plus One” role in resilient manufacturing and supply chains.
Climate Trends Founder-Director Aarti Khosla said the agreement reflects strategic alignment at a time of heightened geopolitical uncertainty and signals where capital and markets are headed—towards climate goals, green industry and clean technology. E3G Programme Lead Madhura Joshi said the conclusion of the FTA marks a landmark moment that could anchor a deeper strategic partnership, strengthen clean energy industries, improve energy security and build resilient global clean energy supply chains.
