The India-EU FTA and CBAM – How the CBAM Annexure Protects Indian Exporters
Introduction: The FTA-CBAM Connection
The India-European Union Free Trade Agreement (FTA) represents a landmark achievement in India's trade relations with one of its most important economic partners. But perhaps its most significant feature for Indian industry is the dedicated annexure on the Carbon Border Adjustment Mechanism (CBAM) .
CBAM, which came into force on January 1, 2026, is the EU's carbon border tax mechanism aimed at levelling the playing field between European manufacturers and overseas exporters. It imposes a carbon price on imports of carbon-intensive goods such as steel, aluminium, cement, fertilisers, and electricity.
The India-EU FTA, which is expected to be signed later in 2026 with implementation likely in 2027, includes a dedicated framework to address CBAM concerns, providing essential support for Indian exporters, particularly those in the small and medium enterprise (SME) sector.
This guide provides a comprehensive analysis of the India-EU FTA's CBAM annexure, what it means for Indian exporters, how it can protect your business from carbon border taxes, and what you must do to leverage its provisions.
What Is the India-EU Free Trade Agreement?
The Agreement
The India-European Union Free Trade Agreement is a comprehensive trade deal that has been under negotiation for several years. It was concluded in late January 2026, with CBAM being the last issue to be resolved during negotiations.
Key Features
| Feature | Description |
|---|---|
| Scope | Comprehensive trade agreement covering goods, services, and investment |
| Signing | Expected later in 2026 |
| Implementation | Likely in 2027 |
| CBAM Annexure | Dedicated framework to address carbon border tax concerns |
The CBAM Challenge
CBAM was a major sticking point during negotiations. India sought to secure concessions for its exporters, particularly small and medium enterprises (SMEs), which face disproportionate compliance burdens.
The Outcome
The FTA includes a dedicated annexure on CBAM with comprehensive provisions to address exporters' concerns and support SMEs.
What Is CBAM and Why Does It Matter?
What Is CBAM?
The Carbon Border Adjustment Mechanism is the EU's carbon border tax mechanism aimed at levelling the playing field between European manufacturers and overseas exporters. It imposes a carbon price on imports of carbon-intensive goods such as steel, aluminium, cement, fertilisers, and electricity.
How It Works
| Step | Description |
|---|---|
| 1. Declaration | Importers must declare the embedded emissions of their imports |
| 2. Certificate Purchase | Importers purchase CBAM certificates to cover these emissions |
| 3. Deduction | If a carbon price has already been paid in the country of origin, it can be deducted |
| 4. Compliance | Importers must submit annual reports and compliance declarations |
The CBAM Certificate Price
The first quarterly price for CBAM certificates was set at EUR 75.36 per tonne of CO₂ equivalent for Q1 2026. The second quarter price was set at €75.28 per tonne for Q2 2026. Certificate costs continue to track the current EU ETS price, currently trading between EUR 79.4 and EUR 81.8 per tonne.
The Impact on Indian Exporters
India's steel and aluminium exports to the EU fell 24.4% in FY2025, with steel alone down 35.1%, before any CBAM financial obligation had taken effect. To remain viable in the EU market, many exporters may have to absorb price cuts of 15–22%.
Why the CBAM Annexure Matters
The CBAM annexure in the India-EU FTA is designed to reduce compliance burdens for Indian exporters, particularly SMEs, by:
- Providing flexibility in CBAM implementation
- Supporting SME compliance
- Recognising Indian carbon prices
- Facilitating verification by Indian verifiers
The CBAM Annexure: Key Provisions
What Is the CBAM Annexure?
The CBAM annexure is a dedicated section of the India-EU FTA that addresses CBAM-related concerns. It includes a comprehensive work plan to help India navigate the EU's carbon tax regime.
Key Provisions
| Provision | Description |
|---|---|
| Dedicated work plan | Comprehensive framework to help India navigate the EU's carbon tax regime |
| SME support | Provisions to ease compliance for small and medium enterprises |
| Carbon price recognition | Framework for recognising carbon prices paid domestically |
| Flexibility provisions | Future flexibility for India |
| Verification support | Help with measuring embedded carbon and getting it verified |
The Government's Perspective
As the commerce ministry official explained: "As you know, India is also developing its own carbon pricing mechanism. So, how to offset what is paid in India from what is paid in Europe is also part of the discussions."
The Four Pillars of the CBAM Annexure
Additional Secretary in the Department of Commerce Darpan Jain outlined the key pillars of the CBAM annexure:
Pillar 1: Flexibility
| Aspect | Description |
|---|---|
| What It Means | In case of flexibility in future, that will be available to India |
| Why It Matters | Ensures India is not locked into rigid compliance requirements |
Pillar 2: SME Compliance
| Aspect | Description |
|---|---|
| What It Means | Help Indian SMEs meet compliance requirements |
| Why It Matters | SMEs face disproportionate compliance burdens |
Pillar 3: Verification
| Aspect | Description |
|---|---|
| What It Means | Provisions for verification and recognition of verifiers |
| Why It Matters | Currently, EU authorities may not recognise Indian verifiers |
Pillar 4: Carbon Price Offset
| Aspect | Description |
|---|---|
| What It Means | Engage with EU authorities on taking into account the carbon price paid in India |
| Why It Matters | Carbon prices paid in India could be offset against CBAM liabilities |
SME Support: A Critical Focus
Why SMEs Need Special Support
Unlike large corporations with dedicated sustainability teams and robust data systems, MSMEs often lack the technical expertise, systems, and financial resources to measure, verify, and report embedded emissions.
The Compliance Cost Burden
Meeting the requirement under the carbon tax alone could cost an MSME unit between ₹15 lakh and ₹20 lakh. These are largely fixed compliance costs, which do not reduce in proportion to the size of the business.
SME Support Provisions
| Provision | Description |
|---|---|
| Compliance support | Help Indian SMEs meet compliance requirements |
| Flexibility | Provisions to ease compliance for smaller exporters |
| Verification recognition | Recognition of Indian verifiers for SMEs |
| Government subsidy | Centre working on a scheme to cover 90% of compliance costs |
What This Means for SMEs
The CBAM annexure provides a framework for:
- Reduced compliance burdens
- Recognition of Indian verifiers
- Support for carbon data collection and verification
- Access to government compliance support
Carbon Price Recognition: The Key to CBAM Relief
The Mechanism
CBAM allows for the deduction of a carbon price already paid in the country of origin. CCTS compliance certificates can serve as evidence of this carbon price.
India's Carbon Pricing Mechanism
"As you know, India is also developing its own carbon pricing mechanism. So, how to offset what is paid in India from what is paid in Europe is also part of the discussions."
What This Means
| Aspect | Implication |
|---|---|
| CCTS recognition | EU may recognise carbon prices paid through India's CCTS |
| CBAM deduction | CCTS compliance could reduce CBAM liability |
| Export competitiveness | Indian exporters could remain competitive in EU markets |
| Value retention | Carbon value stays within India |
The Negotiating Position
The FTA provides a framework for India to engage with the EU on recognising carbon prices paid domestically once India's own carbon pricing mechanism is operational.
Verification and Recognition of Verifiers
The Verification Challenge
Currently, EU authorities may not recognise Indian verifiers for CBAM purposes. This forces Indian exporters to hire expensive EU auditors, adding to compliance costs.
The FTA Provision
The CBAM annexure includes provisions for verification and recognition of verifiers, aimed at:
- Recognising Indian verification agencies
- Reducing compliance costs for Indian exporters
- Building Indian capacity for carbon verification
What This Means for Exporters
| Aspect | Current Situation | With FTA |
|---|---|---|
| Verifiers | Must hire EU-recognised auditors | Indian verifiers may be recognised |
| Cost | High (€70-80 per tonne) | Lower |
| Capacity | Limited Indian capacity | Indian capacity built over time |
The Mutual Recognition Goal
The goal is a mutual recognition regime between European verification agencies and Indian verification bodies to prevent expensive foreign auditing costs.
The CBAM Work Plan: What It Covers
What Is the Work Plan?
The CBAM annexure includes a comprehensive work plan to help India navigate the EU's carbon tax regime.
Key Elements
| Element | Description |
|---|---|
| Technical cooperation | Enhanced cooperation on recognition of carbon prices and verifiers |
| Capacity building | Building Indian capacity for carbon measurement and verification |
| Compliance support | Support for Indian exporters, particularly SMEs |
| Implementation roadmap | Timeline for implementing CBAM-related provisions |
The Commerce Ministry's Role
The commerce ministry is preparing an extensive outreach programme to help businesses understand and benefit from the trade agreement once it comes into force.
Why the Work Plan Matters
The work plan provides:
- A clear roadmap for addressing CBAM concerns
- Technical support for Indian exporters
- A framework for ongoing cooperation
India's Carbon Pricing Mechanism: The CCTS Connection
The CCTS Framework
India's Carbon Credit Trading Scheme (CCTS) is the country's domestic carbon market. It covers approximately 490 obligated entities across seven energy-intensive sectors, with emissions coverage of approximately 477 million tCO₂e.
The CCTS-CBAM Connection
| Aspect | Connection |
|---|---|
| Carbon price | CCTS creates a domestic carbon price |
| CBAM deduction | Carbon prices paid through CCTS could be deducted from CBAM liabilities |
| Export competitiveness | CCTS compliance could reduce CBAM costs for exporters |
What Exporters Must Do
| Action | Why It Matters |
|---|---|
| Participate in CCTS | Demonstrate carbon compliance to EU buyers |
| Document compliance | Maintain records for CBAM declarations |
| Procure credits | Buy CCCs to demonstrate carbon reduction |
| Engage with FTA provisions | Leverage the CBAM annexure |
The "CBAM-Aligned Tier"
India is also preparing to operationalise its own domestic carbon market amid rising global climate-linked trade regulations. A "CBAM-aligned tier" within the CCTS is being discussed, which would provide additional confidence to EU importers.
Implementation Timeline: When Will It Take Effect?
The FTA Timeline
| Milestone | Timeline |
|---|---|
| FTA Conclusion | January 2026 (negotiations completed) |
| FTA Signing | Expected later in 2026 |
| FTA Implementation | Likely in 2027 |
| CBAM Annexure Implementation | Likely 2027 onwards |
The CBAM Timeline
| Phase | Period | Requirement |
|---|---|---|
| Transitional | October 2023 – December 2025 | Reporting only, no payment |
| Definitive | January 1, 2026 | Payment phase begins |
| Certificate Surrender | February 2027 | First CBAM certificates must be surrendered for 2026 imports |
What This Means for Exporters
- 2026: CBAM payment phase begins; exporters must adapt
- 2027: FTA implementation begins; CBAM annexure provisions take effect
- 2028: CBAM expands to additional products
What This Means for Indian Exporters
For Steel Exporters
| Aspect | Impact |
|---|---|
| CBAM tax burden | 20-35% tax burden without mitigation |
| FTA relief | Carbon price recognition could reduce burden |
| Action required | Participate in CCTS; document carbon compliance |
For Aluminium Exporters
| Aspect | Impact |
|---|---|
| CBAM exposure | Significant; coal-based power increases burden |
| FTA relief | Carbon price recognition could reduce burden |
| Action required | Invest in renewable energy; participate in CCTS |
For Cement and Fertiliser Exporters
| Aspect | Impact |
|---|---|
| CBAM exposure | Growing; full implementation expected shortly |
| FTA relief | Carbon price recognition could reduce burden |
| Action required | Reduce emissions; participate in CCTS |
For SMEs
| Aspect | Impact |
|---|---|
| Compliance burden | ₹15–20 lakhs per unit without support |
| FTA relief | SME support provisions; 90% compliance cost subsidy |
| Action required | Develop carbon data systems; engage with verifiers |
Commerce Ministry's Outreach Programme
The Programme
The commerce ministry is preparing an extensive outreach programme to help businesses understand and benefit from the trade agreement once it comes into force.
Key Features
| Feature | Description |
|---|---|
| District-level outreach | "We want to go to all the districts and conduct outreach programmes there" |
| Industry education | Tell industry about what is in the FTA |
| Opportunity exploration | How they can use it, explore opportunities under that |
| Capacity building | Build understanding of CBAM requirements |
Why It Matters
The outreach programme will help:
- Businesses understand FTA provisions
- Exporters leverage CBAM annexure benefits
- SMEs access compliance support
- Industry prepare for CBAM implementation
What Businesses Should Do
- Stay informed about outreach programmes
- Engage with commerce ministry initiatives
- Prepare for FTA implementation in 2027
- Build capacity for CBAM compliance
The CBAM Expansion: What's Coming in 2028
The EU Council's Decision
In June 2026, the EU Council agreed to strengthen the CBAM, expanding its reach to more products and introducing strict anti-circumvention measures.
Key Changes
| Change | Impact |
|---|---|
| Expansion to 180 additional products | More Indian exports affected |
| Anti-circumvention framework | Prevents exporters from bypassing the tax |
| Tightened carbon accounting | Stricter rules for scrap-based production |
| Timeline | January 1, 2028 |
The Strengthened Rules
"The EU remains committed to reducing climate emissions both within the Union and globally. Strengthening the CBAM and closing loopholes that can circumvent our rules is a key part in fulfilling that goal," said Makis Keravnos, Minister of Finance of Cyprus.
What This Means for Exporters
- CBAM coverage will expand significantly in 2028
- More Indian products will face carbon border taxes
- Preparation is essential
How Carboned.in Can Help
At Carboned.in, we help Indian exporters navigate the India-EU FTA and CBAM with clarity and confidence.
Our Services
| Service | What We Do |
|---|---|
| FTA-CBAM Assessment | Understand how the FTA and CBAM annexure apply to your business |
| CCTS Compliance | Help you meet domestic compliance obligations |
| Credit Procurement | Buy CCCs to demonstrate carbon compliance |
| Verification Support | Connect you with accredited verifiers |
| CBAM Data Pack Preparation | Help you prepare standardised data packs |
| Legal Documentation | Draft contracts and compliance documents |
| Regulatory Advisory | Stay informed about FTA and CBAM developments |
Why Choose Carboned.in?
| Reason | Why It Matters |
|---|---|
| Legal Expertise | Led by Siddharth Gupta, Advocate, Calcutta High Court |
| Regulatory Knowledge | Deep understanding of CCTS, CBAM, and trade policy |
| FTA Experience | Knowledge of India-EU FTA provisions |
| End-to-End Support | From assessment to compliance |
Your first consultation is completely free. No obligation. Just honest advice.
Conclusion
The India-EU FTA's CBAM annexure represents a significant opportunity for Indian exporters to navigate the EU's carbon border tax regime. With provisions for flexibility, SME support, verification recognition, and carbon price offset, the annexure provides a framework for protecting Indian export competitiveness.
Key Takeaways
| Aspect | What You Need to Know |
|---|---|
| FTA Signing | Expected 2026 |
| FTA Implementation | Likely 2027 |
| CBAM Annexure | Dedicated framework for CBAM concerns |
| Four Pillars | Flexibility, SME support, verification, carbon price offset |
| CBAM Certificate Price | €75.36/tonne (Q1 2026) |
| CBAM Expansion | 180 additional products from 2028 |
The Choice Is Yours
| Option | Outcome |
|---|---|
| Act now | Understand FTA provisions, participate in CCTS, protect export competitiveness |
| Wait and see | Face higher costs, lose market share, suffer reputational damage |
How Carboned.in Can Help
At Carboned.in, we help Indian exporters navigate the India-EU FTA and CBAM with clarity and confidence.
- FTA-CBAM Assessment: Understand how the FTA applies to your business
- CCTS Compliance: Meet domestic obligations
- Credit Procurement: Demonstrate carbon compliance
- Verification Support: Connect with accredited verifiers
- CBAM Data Packs: Prepare for EU requirements
Your first consultation is completely free. No obligation. Just honest advice.
How Carboned.in can help
Our team covers every dimension of India's carbon market — pick the service that matches where you are.
Frequently Asked Questions
What is the India-EU FTA?+
A comprehensive free trade agreement between India and the European Union, expected to be signed in 2026 and implemented in 2027.
What is the CBAM annexure?+
A dedicated section of the FTA that addresses CBAM-related concerns, providing essential support for Indian exporters, particularly SMEs.
What is CBAM?+
The EU's Carbon Border Adjustment Mechanism — a carbon tariff on imports effective from January 1, 2026.
What sectors are covered by CBAM?+
Steel, aluminium, cement, fertilisers, hydrogen, and electricity.
What are the four pillars of the CBAM annexure?+
Flexibility, SME compliance, verification, and carbon price offset.
How does the FTA help SMEs?+
The FTA includes provisions to ease compliance for SMEs, and the government is working on a scheme to cover 90% of compliance costs.
What is carbon price recognition?+
The EU will take into account India's carbon trading system when implemented, allowing carbon prices paid in India to be offset against CBAM liabilities.
What is the CBAM certificate price?+
EUR 75.36 per tonne for Q1 2026 and €75.28 per tonne for Q2 2026.
When will the FTA take effect?+
Implementation is likely in 2027.
When will CBAM expand?+
CBAM will expand to 180 additional products from January 1, 2028.
How can Carboned.in help?+
We provide FTA-CBAM assessment, CCTS compliance, credit procurement, verification support, and CBAM data pack preparation.
Siddharth Gupta is the founder of Carboned.in and specialist counsel for India's carbon compliance framework — advising obligated entities, project developers, and buyers on CCTS, CR-I registration, and credit transactions.
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