Finance Minister Nirmala Sitharaman and Commerce and Industry Minister Piyush Goyal have, on multiple occasions, called the Carbon Border Adjustment Mechanism (CBAM) or carbon tax an “unfair” measure and a violation of the “common but differentiated responsibilities” (CBDR) provision of multilateral climate negotiations. This stipulates that all countries share responsibility for mitigating climate change but “not equally,” as economic development levels differ across countries.

“Negotiations with the EU are primarily taking place under the Trade and Technology Council (TTC). There is a separate track where we have agreed to discuss the challenges posed by CBAM. One of India’s key concerns is that CBAM violates the CBDR principle, as our stance is that environmental issues should not be linked to trade. Secondly, Indian exporters have raised privacy concerns, as the EU demands over 1,000 data points as part of CBAM compliance. Many small manufacturers do not even have that kind of data,” an official told The Indian Express.

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While several countries, including China, Russia, Brazil, and South Africa, have taken the EU to the WTO, India is yet to formally file a case as both sides are actively discussing a free trade agreement (FTA), investment pact, and geographical indication (GI) treaty.

In the FTA negotiations, India is also seeking concessions for its Micro, Small and Medium Enterprises (MSMEs).

However, the carbon tax issue remains a key sticking point. While the EU maintains that it complies with WTO rules and is merely an extension of its domestic regulations to international trade, India argues that any concessions agreed upon in the FTA could be nullified due to CBAM, which allows for more products to be added to its scope over time.

“CBAM is not specifically on the agenda, but we recognise that the Indian side has raised specific concerns about CBAM and its potential impact. We are, of course, committed to addressing those concerns with all affected parties globally,” an EU official said on Tuesday. “We are keen to share our experience and the operation of CBAM with the Indian side, as we believe some concerns may be unfounded, and we are certainly ready to address them,” the official added.

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Notably, CBAM is set to take effect January 2026, with the transition period—requiring exporters to submit data to EU authorities— having begun on October 1, 2023. This is significant as India exports over 15 per cent of its total goods exports to the EU. In 2022-23, India exported goods worth $75 billion to the EU.

Delhi-based think tank Global Trade and Research Institute (GTRI) estimates that CBAM will have an adverse impact on India’s exports of metals such as iron, steel, and aluminium products to the EU, translating into a 20–35 per cent tax on select imports into the EU from January 1, 2026.

“The product categories at risk due to the proposed sustainability-focused EU regulations include textiles, chemicals, selected consumer electronics products, plastics, and vehicles. These items accounted for 32 per cent of India’s exports to the EU in 2022, valued at approximately $27 billion. If CBAM sectors are added to the list, then the exports of at-risk sectors amount to $37 billion, which is approximately 43 per cent of India’s exports to the EU as of 2022,” the Council on Energy, Environment and Water (CEEW) said in a 2024 report.