India recently, on January 27, 2026, concluded negotiations on the Free Trade Agreement (FTA) with the European Union at the 16th India-EU Summit in New Delhi. While many refer to it as the ‘mother of all deals’, what implications does it have for India as recently the EU-Carbon Border Adjustment Mechanism (CBAM) also entered its definitive phase as of January 1, 2026? A critical question for Indian policymakers and exporters is whether the FTA will provide leverage to India or whether India will be subjected to the same stringent carbon costs as the other global trading partners.

The EU-Carbon Border Adjustment Mechanism is something that the EU came up with in order to prevent ‘carbon leakage’ and meet its net zero emissions goal. It imposes tax on import of products that are produced by industries that are carbon intensive, such as steel, aluminum, cement, and fertilizers. What this means, in practice, is that if the carbon emissions are not reduced, then Indian products would be priced higher in the European market because of the imposition of taxes, leading to a major hit to Indian exports. Furthermore, as of April 16, 2026, the European Commission has proposed expanding this scope to include approximately 180 additional products such as machinery parts, pipes, and fabricated metal products, starting January 2028, which is likely to raise the final costs for a wide range of Indian manufactured exports.

This new development has made India’s Micro, Small, and Medium Enterprise (MSME) sector highly vulnerable. The MSME sector employs millions of women in informal, downstream manufacturing roles, such as assembly, packaging, and supply chain logistics, meaning that these compliance costs will disproportionately jeopardize female employment in India. While international trade is often perceived as gender-neutral, an intersectional lens reveals that structural labor divisions ensure trade shocks are deeply gendered, ultimately widening the economic divide if left unaddressed.

Therefore, without rapid decarbonisation, Indian products are at a risk of being priced out of the European market. The question arises: will the new trade pact make way for Indian goods in the EU market or will India also have to make changes in the carbon intensive industries in order to align with the goals of the Paris Agreement?

Reports are that CBAM would be implemented in full force irrespective of the EU-India FTA, which means that, like other countries, India will also have to follow the set path. However, in order to implement the same, India needs funds to move forward with decarbonisation. The EU promises to provide help, but it’s unclear if that support will be timely or sufficient enough to meaningfully cushion the blow to India’s exports. The integration of the Indian Carbon Credit Trading Scheme (CCTS) emerges as a critical economic and legal safeguard for India. In accordance with Article 9 of the EU Carbon Border Adjustment Mechanism Regulations, the EU is expected to provide a methodology for deducting the carbon prices effectively paid in the country of origin. If India successfully links its domestic carbon market in accordance with the EU’s requirements, then it can keep the ‘carbon tax’ revenue within its own borders to fund its energy transition, rather than surrendering it to the EU. This provision was designed to prevent ‘double carbon taxation’ and in compliance with the World Trade Organisation’s National Treatment principle under Article III of GATT .

However, this dynamic exposes a profound weakness within the framework of international law. The EU attempts to justify CBAM under GATT Article XX, which governs general exceptions, while, on the other hand, international law also upholds the principle of Common but Differentiated Responsibilities (CBDR) as enshrined under Article 3(1) of the UNFCCC as well as the Paris Agreement. By unilaterally imposing a carbon tax equally on all countries, including developing nations, CBAM treats the vastly unequal economic capabilities with formal equity, thereby nullifying the ‘differentiated’ obligations.

To resolve these conflicting treaty dynamics, India should advocate for a systemic harmonization of these regimes to argue that WTO trade rules must be interpreted in alignment with the Paris Agreement principles.

For India, the EU is one the largest markets for its exports and the implementation of such policies pushes India to balance not only trade but also the environment. Concerns have been raised regarding the compatibility of CBAM requirements with WTO principles, with some stakeholders labeling it a ‘non-tariff barrier.’ Ultimately, these concerns will impact the EU-India FTA. Many might say that the WTO is primarily concerned only with trade, but the growing concerns with regard to the environment has made present global trade dependent on the fulfilment of certain environmental conditions. Apart from the EU, other countries like the US and UK are also considering similar mechanisms. Looking at the present situation, it feels like that it would be best if India speeds up in its investment in green technology that favours such policies and conditions so that India is not left behind.

Even if some leverage is given to India with regard to the FTA, India should not see the same as a loophole to bypass environmental standards. Rather, it should be seen as an opportunity to modernize its mechanism so that it aligns with the future goals of reduced carbon emissions. Transitioning to low-carbon production will not only benefit India in its trade with the EU but also enhance its competitiveness in a global market that is rapidly moving toward mandatory sustainability. While many Indian companies have already begun this shift, these stringent policies serve as a catalyst for long term economic and environmental resilience. It must be recognized that, just as economic impacts are gendered, environmental degradation also carries profound, disproportionate gendered consequences that must be addressed to ensure a truly equitable transition. Ultimately, true climate resilience can only be achieved by securing gender-responsive green financing and technology transfers, ensuring that a net-zero future does not come at the expense of social equity.