Congress leader Jairam Ramesh on Thursday said the proposed India–European Union Free Trade Agreement must address what he described as an unacceptable non-tariff barrier, referring to the European Union’s Carbon Border Adjustment Mechanism, which will be fully implemented from 2026.
Ramesh said the carbon pricing mechanism, introduced by the European Union, would impose additional costs on Indian exporters and could undermine the benefits of a comprehensive trade agreement currently under negotiation.
The Carbon Border Adjustment Mechanism is a climate policy tool designed to place a price on carbon emissions embedded in imported goods and prevent carbon leakage. Under the framework, select imports entering the EU will attract a carbon-linked charge, even as India and the EU continue talks on a free trade pact.
Ramesh said Indian exporters of steel and aluminium are likely to be among the most affected. In 2024–25, India’s exports of steel and aluminium to the EU averaged USD 5.8 billion, down from around USD 7 billion in the previous year, as European importers began preparing for the introduction of the mechanism.
The much-awaited India-EU Free Trade Agreement will reportedly be finalised later this month. Meanwhile, beginning today Jan 1, 2026 itself, Indian steel and aluminum exporters to the 27-nation European Union will have to pay a carbon tax under the EU’s Carbon Border Adjustment…
— Jairam Ramesh (@Jairam_Ramesh) January 1, 2026
In a post on X, he said the decline reflected early adjustments by EU buyers ahead of the carbon levy and warned that the impact would intensify once the mechanism moves into its payment phase.
He cited estimates by the Global Trade Research Initiative, which suggest that Indian exporters may be forced to cut prices by 15 to 22 per cent to allow EU importers to absorb the cost of the carbon charge.
Ramesh also pointed to additional compliance costs arising from the documentation and reporting requirements under the carbon mechanism, which require detailed accounting of emissions embedded in exported products. He said these requirements add to the financial and administrative burden on Indian exporters.
Against this backdrop, he said any India–EU free trade agreement that is eventually signed must take into account what he termed as the unacceptable non-tariff barrier posed by the carbon adjustment mechanism.
According to GTRI, the carbon mechanism will move from a reporting phase to a payment-linked commercial framework from January 1, 2026. While Indian exporters will not directly pay the levy, EU-based importers, registered as authorised declarants, will be required to purchase carbon certificates linked to the emissions embedded in imported steel and aluminium.
The think tank said the cost of these certificates is likely to be passed on to Indian suppliers through lower prices and stricter contract terms. It warned that Indian steel and aluminium exports to the EU could face significant pressure, with micro, small and medium enterprises expected to bear the brunt due to high compliance and verification costs.
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