The India-EU FTA CBAM Annexure – A Comprehensive Work Plan to Protect Indian Exporters
Introduction: The Negotiating Capital Well Spent
The India-European Union Free Trade Agreement (FTA) represents one of the most significant trade deals in India's history. It brings together two of the world's largest economies, offering businesses access to a combined market of nearly USD 25 trillion. But perhaps its most critical feature for Indian industry is the dedicated annexure on the Carbon Border Adjustment Mechanism (CBAM) .
"CBAM was one of the topics which took up a lot of our negotiating capital," said Darpan Jain, Additional Secretary in the Department of Commerce and India's chief negotiator for the FTA. "And I must say, we explored many options on that. If you see the text of the agreement, which is already there in the public domain, there is a separate annexure on dealing with Carbon Border Adjustment Mechanism".
The CBAM annexure is not a minor addendum. It is a comprehensive work plan designed to help India navigate the EU's carbon tax regime while safeguarding the commercial interests of Indian exporters, particularly small and medium enterprises (SMEs).
CBAM, which became effective in January 2026, imposes a carbon price on imports of carbon-intensive goods such as steel, aluminium, and cement. For Indian exporters, this represents a material industrial risk. Iron, steel, and aluminium account for the overwhelming share of India's CBAM-covered exports. High emissions intensity combined with deep integration into EU value chains makes CBAM a material industrial risk.
This guide provides a comprehensive analysis of the India-EU FTA's CBAM annexure, its four pillars, the comprehensive work plan, and what Indian exporters 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 |
| Market Access | Combined market of nearly USD 25 trillion |
| Coverage | Goods, services, e-commerce, intellectual property, and other trade-related rules |
| 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.
The Significance
The agreement goes beyond tariff cuts by covering goods, services, e-commerce, intellectual property and other trade-related rules, giving businesses greater certainty in an evolving global trade environment. According to Jain, the complementary strengths of India and Europe, with India's skilled workforce and Europe's technological capabilities, could help companies integrate into global value chains and create new opportunities for investment, manufacturing and exports.
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, hydrogen, 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.
The Impact on Indian Exporters
India's steel and aluminium exports to the European Union fell 24.4% in FY2025, with steel alone down 35.1%, before any CBAM financial obligation had taken effect. The decline, which suggests European buyers are already reorienting toward lower-emission producers, underscores what is at stake as India's Carbon Credit Trading Scheme (CCTS) enters its operational phase.
The Cost Impact
| Sector | CBAM Cost Impact |
|---|---|
| Steel (BF-BOF) | ~€192 per tonne |
| Steel (general) | 20-35% tax burden |
| Aluminium | Significant (coal-based power increases burden) |
| Price reduction required | 15-22% to remain viable |
The CBAM Annexure: A Dedicated Framework
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.
Why It Was Needed
"CBAM compliances are a concern among SMEs in terms of verification, in terms of finding out what is the value of embedded carbon, in terms of ensuring that the verifiers are recognised by the EU authorities," Jain explained.
The Comprehensive Work Plan
"I would say, work plan under annexure on CBAM and we're working on it, and I am very hopeful that SMEs will not face any problem," Jain said.
The Provisions
The annexure includes provisions covering verification processes, calculation of embedded carbon emissions and engagement with EU authorities to ease compliance for smaller exporters.
What This Means for Exporters
The CBAM annexure provides a framework for:
- Reduced compliance burdens for Indian exporters
- Recognition of Indian verifiers
- Support for carbon data collection and verification
- Offset of domestic carbon costs against CBAM liabilities
The Four Pillars of the CBAM Annexure
The CBAM annexure is built around multiple pillars aimed at reducing compliance burdens for Indian exporters.
The Four Pillars
| Pillar | Description |
|---|---|
| 1. Flexibility | If the EU grants any future flexibility under CBAM, the same will be extended to India |
| 2. SME Compliance | Help Indian SMEs meet compliance requirements |
| 3. Verification | Provisions for verification and recognition of verifiers |
| 4. Carbon Price Offset | Engage with EU authorities on taking into account the carbon price paid in India |
The Obligation
"The first pillar is that, in case of flexibility in future, that will be available to India. So there is an obligation in that," Jain explained.
Why the Pillars Matter
Each pillar addresses a specific challenge faced by Indian exporters:
| Pillar | Challenge Addressed |
|---|---|
| Flexibility | Ensuring India is not locked into rigid compliance requirements |
| SME Compliance | SMEs face disproportionate compliance burdens |
| Verification | EU authorities may not recognise Indian verifiers |
| Carbon Price Offset | Carbon prices paid in India could be offset against CBAM liabilities |
Pillar 1: Future Flexibility for India
What It Means
The first pillar ensures that if the EU grants any future flexibility under CBAM, the same flexibility will be available to India.
The Obligation
"There is an obligation in that," Jain confirmed.
Why It Matters
| Aspect | Implication |
|---|---|
| Level playing field | India will not be disadvantaged compared to other countries |
| Future-proofing | India benefits from any future easing of CBAM requirements |
| Certainty | Exporters can plan with confidence |
What "Flexibility" Could Include
- Extended compliance timelines
- Simplified reporting requirements
- Reduced verification burdens
- Recognition of additional carbon pricing mechanisms
The Strategic Advantage
This pillar ensures that India's exporters are not disadvantaged as CBAM evolves. If the EU grants concessions to other countries, India will receive the same treatment.
Pillar 2: SME Compliance Support
The SME Challenge
"CBAM compliances are a concern among SMEs in terms of verification, in terms of finding out what is the value of embedded carbon, in terms of ensuring that the verifiers are recognised by the EU authorities".
The Provisions
The annexure includes separate provisions to help Indian SMEs meet the compliance requirements under the mechanism.
What This Means for SMEs
| Aspect | Benefit |
|---|---|
| Verification support | Help with measuring embedded carbon |
| Compliance guidance | Assistance with reporting requirements |
| Reduced burden | Provisions to ease compliance for smaller exporters |
| Government support | Access to compliance cost subsidies |
The Government's Commitment
"I am very hopeful that SMEs will not face any problems," Jain said.
The Compliance Cost Subsidy
The government is working on a scheme to cover 90% of compliance costs for MSMEs facing CBAM compliance. This, combined with the FTA provisions, provides a significant safety net for smaller exporters.
Pillar 3: 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 Solution
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 Verification Process
The annexure includes provisions covering:
- Verification processes
- Calculation of embedded carbon emissions
- Recognition of verifiers by EU authorities
Pillar 4: Carbon Price Offset
The Mechanism
CBAM allows for the deduction of a carbon price already paid in the country of origin.
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," Jain said.
The FTA Provision
"We also have a provision in which we can engage with EU authorities on taking into account the carbon price which is paid in India".
What This Means for Exporters
| 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.
The Comprehensive Work Plan
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
"I would say, work plan under annexure on CBAM and we're working on it, and I am very hopeful that SMEs will not face any problem," Jain said.
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
The Engagement Mechanism
The work plan includes provisions for engagement with EU authorities on:
- Verification processes
- Calculation of embedded carbon emissions
- Recognition of Indian verifiers
- Offset of Indian carbon costs
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.
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 |
The Recognition Discussion
"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 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.
The CBAM Certificate Price and Compliance Timeline
The CBAM Certificate Price
| Quarter | Price |
|---|---|
| Q1 2026 | EUR 75.36 per tonne |
| Q2 2026 | €75.28 per tonne |
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 |
The FTA Implementation 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 |
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
The Strategic Opportunity
The CBAM annexure provides a framework for:
- Reduced compliance burdens
- Recognition of Indian carbon prices
- Support for SME exporters
- Future flexibility
What Exporters Must Do
| Action | Priority | Timeline |
|---|---|---|
| Understand CBAM exposure | High | Immediate |
| Develop emissions measurement capability | High | 0-3 months |
| Engage with verifiers | High | 0-3 months |
| Participate in CCTS | Medium | 3-6 months |
| Prepare CBAM data packs | High | 3-6 months |
| Leverage FTA provisions | Medium | 6-12 months |
The Export Competitiveness Angle
"Every major Emissions Trading System (ETS) began with compliance entities only. The CCTS is right to do the same," notes the IEEFA report. "Financial intermediaries matter eventually for what they make possible: continuous price discovery and the hedging that gives firms confidence to commit to large decarbonisation investments over long horizons".
Sector-by-Sector Impact
Steel Sector
| Aspect | Impact |
|---|---|
| CBAM exposure | Very High |
| CBAM cost | ~€192 per tonne (BF-BOF) |
| Price reduction required | 15-22% |
| FTA relief | Carbon price recognition could reduce burden |
| Action required | Participate in CCTS; document carbon compliance |
Aluminium Sector
| Aspect | Impact |
|---|---|
| CBAM exposure | High |
| CBAM cost | Significant (coal-based power increases burden) |
| Price reduction required | 15-22% |
| FTA relief | Carbon price recognition could reduce burden |
| Action required | Invest in renewable energy; participate in CCTS |
Cement Sector
| Aspect | Impact |
|---|---|
| CBAM exposure | Moderate but growing |
| CBAM cost | Growing as exports increase |
| FTA relief | Carbon price recognition could reduce burden |
| Action required | Reduce emissions; participate in CCTS |
SMEs
| Aspect | Impact |
|---|---|
| CBAM exposure | Significant |
| Compliance burden | ₹15-20 lakhs without support |
| FTA relief | SME support provisions; 90% compliance cost subsidy |
| Action required | Develop carbon data systems; engage with verifiers |
The Commerce Ministry's Outreach Programme
The Programme
The Commerce Ministry has planned an extensive outreach programme covering more than 700 districts, working with State governments to educate businesses on the FTA.
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 |
| Capacity building | Build understanding of CBAM requirements |
Why It Matters for Exporters
The outreach programme will help exporters:
- Understand FTA provisions
- Leverage CBAM annexure benefits
- Access compliance support
- Prepare for CBAM implementation
What Exporters Should Do
| Action | Timeline |
|---|---|
| Stay informed | Monitor outreach programmes in your district |
| Engage with programmes | Attend workshops and training sessions |
| Ask questions | Seek clarification on CBAM requirements |
| Prepare | Use the information to prepare for compliance |
CBAM Expansion: What's Coming in 2028
The EU Council's Decision
In June 2026, the EU Council agreed to strengthen the Carbon Border Adjustment Mechanism (CBAM), expanding it to more products.
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 EU Council Statement
"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 now
The FTA Advantage
The CBAM annexure's provisions on future flexibility mean that India will benefit from any concessions granted as CBAM expands.
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 |
| Export Decline | Steel/aluminium exports down 24.4% in FY2025 |
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 separate provisions to help Indian SMEs meet compliance requirements, and the government is working on a scheme to cover 90% of compliance costs.
What is carbon price offset?+
The EU will engage with India on taking into account the carbon price paid in India, allowing domestic carbon costs 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 has CBAM affected Indian exports?+
India's steel and aluminium exports to the EU fell 24.4% in FY2025, with steel alone down 35.1%.
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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