Op-ed: The EU-India FTA: A new model linking trade, climate, and industrial policy?

By Colette van der Ven. Claudia Azevedo contributed to this article.

This op-ed was first published on Borderlex on 30/01/2026.

Sustainability and climate provisions were a key sticking point in the recently concluded India-EU trade negotiations.

The final outcome includes fewer binding climate commitments than other EU free trade agreements, but it does offer a pathway to better integrating the trade, climate and industrial policy objectives of two vastly different trading partners.

The trade negotiations exposed a gap between the EU’s push for binding and enforceable commitments on sustainable development and India’s preference for flexibility and development-sensitive cooperation.

As a result, the brokered outcome comprises weaker climate-related provisions than the ones traditionally included in EU free trade accords. But it also sets out a broader climate cooperation agenda focused on clean supply chains and industrial transformation.

This approach reflects an understanding that a key gain in the context of trade and climate policy is to integrate clean supply chains, playing to each party’s strengths and aligning with industrial policy objectives.

This could be a promising start to better link trade, climate and industrial policy objectives between two vastly different trading partners.

Back to basics: Climate provisions in the EU-India FTA framework

The FTA includes a trade and sustainable development – or TSD – chapter, a key feature of all EU FTAs since the pact with South Korea in 2009.

Given the parties’ vastly different approaches to sustainability, the inclusion of a TSD chapter in the agreement can be considered a win. It signals at a minimum that both parties are and remain committed to mainstreaming sustainability principles in trade, which cannot be taken for granted in today’s geopolitical climate.

While the deal’s full text is not yet publicly available, official documents thus far suggest that the chapter incorporates climate provisions typically encountered in EU FTAs.

These include: the right to regulate, a non-regression clause, a commitment to implement multilateral environmental agreements including the Paris Agreement and various climate-related cooperation provisions.

However, the climate provisions appear weaker than in recent EU FTAs.

Unlike the agreements with Indonesia and Mercosur, the EU-India FTA does not appear to grant ‘essential element’ status to the Paris Agreement, thereby weakening the trade consequences of a breach of the parties’ climate commitments.

The TSD chapter is also not subject to binding dispute settlement.

This reflects the broader geopolitical context that demanded compromises and the political pressure to conclude the FTA as soon as possible.

This urgency led the parties to drop a number of chapters, including those relevant to climate policy such as the energy and raw materials chapter.

Compromises reached by the parties have also affected tariff liberalisation.

For instance, the FTA reduces tariffs on cars selling above €15,000 from 100% to 10%, but, similar to the provisions in the UK-India trade agreement, electric vehicles are excluded from liberalisation in the first five years after entry into force of the agreement.  By delaying tariff reductions on EVs, India seeks to protect its emerging EV industry.

Moreover, even after EV tariff reductions enter into force, EU investors in Indian EVs must still comply with India’s staged localisation and value-addition requirements, which are expected to remain in effect to enable India to balance industrial policy objectives with trade liberalisation and climate goals.

No CBAM flexibilities for India

The EU’s carbon border adjustment mechanism has been a key sticking point in the FTA negotiations, with Indian negotiators concerned that the scheme could undo tariff gains for Indian exporters, especially for steel.

The FTA does not include special CBAM flexibilities or exemptions requested by Indian negotiators.

According to the Indian government, New Delhi secured a “forward-looking most-favoured nation assurance extending flexibilities if granted to third countries under the regulation”.

This would appease India’s concerns that the EU might offer CBAM exemptions to the United States as part of its deal with Washington.

This apparent concession on the part of the EU will change nothing however, given that under the CBAM regulation and in line with its WTO commitments the bloc cannot grant special CBAM treatment to any individual country.

The EU and India agreed to hold further talks on various technical elements of the CBAM, including technical cooperation around the recognition of India’s carbon pricing regime, the recognition of emission verifiers and financial assistance and targeted support.

The parties further committed to share experiences on the design and implementation of India’s carbon credit trading scheme and the EU’s emission trading scheme.

Stepping up support on CBAM-related compliance issues is long overdue and critical to mitigating CBAM compliance requirements, especially for Indian SMEs.

Technical cooperation on recognising India’s carbon regime will be key as we await the adoption by the EU institutions of the implementing act establishing the methodology for deducting carbon prices paid in third countries.

For Indian steel exporters, the CBAM is not the only challenge. New safeguards from mid-2026 will almost halve the existing quota and impose 50% tariffs on out-of-quota volumes.

While India has managed to secure a larger quota under the upcoming safeguard, this will cover only half of its current steel exports to the bloc.

A punitive 50% tariff also risks undermining CBAM’s effectiveness as a lever for decarbonisation.

Facilitating industrial transformation in CBAM-covered industries

Strengthened bilateral cooperation should go beyond CBAM compliance and serve as a platform to address supply-side obstacles to decarbonising India’s rapidly growing coal-dependent heavy industries.

India’s carbon emissions intensity among large steel producers is 30% above the world’s average.

With India projected to double its steel production by 2030 compared to 2019, decarbonising the sector remains critical.

The strategic agenda emphasises a commitment to enhancing collaboration on industrial decarbonisation, particularly in hard-to-abate energy-intensive industries, as well as renewable energy.

To this end, the strategic framework signals the parties’ strengthened commitment to operationalising existing platforms, such as the India-EU Clean Energy and Climate Partnership, the Task Force on Green Hydrogen and the India-EU Environmental Forum.

The European Commission also announced the blocs will sign a memorandum of understanding on climate cooperation to be launched in the first half of 2026 and will commit €500 million towards India’s industrial transformation.

These initiatives could help address supply-side challenges in decarbonising heavy industry in India.

The broader EU-India industrial transformation agenda as a starting point

Whether the broader cooperation on clean supply chains and industrial transformation will lead to concrete outcomes will depend on the parties’ political commitment, willingness to compromise and sufficient resource allocation.

€500 million is a mere drop in the bucket of what is required to decarbonise heavy industry in India, estimated to be around €390 billion between 2022 and 2030.

Many of the issues also remain incredibly complex.

For example, there will need to be alignment or interoperability between India’s ‘Green Steel Taxonomy’ with the voluntary low-carbon steel standard that is being developed in the EU’s future Industry Accelerator Act – reflecting vastly different levels of ambition.

At the same time the FTA and strategic agenda fail to emphasise technology co-development or technology transfer relevant to industrial transformation.

Cooperation on access to scrap, which is considered a low-hanging fruit for decarbonising the steel and aluminum sectors, is also missing, which is especially important given that the EU currently restricts scrap exports under the revised waste shipment regulation.

Concluding ongoing negotiations on an EU-India investment protection agreement would help boost investors’ confidence and facilitate investment in energy-intensive industries, which are particularly promising areas for European investor.

The multitude of task forces and initiatives, in addition to the bilateral Trade and Technology Council, risks diluting the efforts of each platform and could lead to misalignment.

India and the EU should designate a platform to discuss industrial transformation issues – including by specific sectors where warranted – thereby streamlining efforts linking trade liberalisation, climate, and industrial policy.

This could be done through existing committees under the FTA, the TTC or modeled on the commission’s new clean trade and investment partnerships.

While the trade and climate agenda still has a long way to go, the FTA and strategic agenda is historic and must be acknowledged as such.

The FTA will allow the sides to sustain and deepen momentum around clean supply chain integration and the broader industrial transformation agenda, thereby setting the stage for a sustainable future.