The India-EU free trade agreement will include a dedicated annexure on the EU’s Carbon Border Adjustment Mechanism, giving exporters a formal channel to negotiate flexibility, verification recognition and carbon price deductions under the bloc’s carbon border tax. Darpan Jain, Additional Secretary in India’s Department of Commerce, confirmed the framework at the Indo-German Chamber of Commerce Industry Dialogue 2026 in New Delhi, saying “CBAM took a lot of negotiating capital” and that the agreement carries specific commitments on the issue. For companies trading carbon-intensive goods into the EU, this is the first time CBAM mitigation has been written into a trade deal structure rather than left to unilateral Brussels rulemaking.
What the CBAM Annexure Contains
Jain described the annexure as built on pillars, with the first being future flexibility: if the EU grants any flexibility under CBAM going forward, that flexibility will be available to India as an obligation under the FTA, not as a discretionary concession.
Beyond that, the annexure addresses the three operational pain points exporters face today. It covers the calculation of embedded carbon emissions, the verification of those emissions by independent bodies, and the recognition of Indian verifiers by EU authorities. It also establishes a framework for India to engage with the EU on recognizing carbon prices paid domestically once India’s own carbon pricing mechanism is operational, a provision that directly affects how much exporters ultimately pay at the EU border.
The trade pact’s legal scrubbing has been completed, Jain said. Negotiations concluded in January 2026, signing is expected later this year, and implementation is likely in 2027.
Why This Matters Beyond India
CBAM entered its definitive regime on January 1, 2026, and currently applies to steel and aluminium, with cement and fertilisers also covered under the broader framework. Every exporting economy with carbon-intensive industrial output faces the same compliance stack: measuring embedded emissions, paying for accredited verification, and absorbing or passing on the border levy.
The India-EU annexure is therefore a template worth watching. If the EU is willing to codify verifier recognition and domestic carbon price engagement in a bilateral trade text, other trading partners will point to it in their own negotiations. For buyers of CBAM-covered goods, the framework also signals which supply chains are likely to face the least compliance friction over the next two years.
The stakes are large on both sides. India and the EU together account for nearly one-third of global trade, valued at around $33 trillion, according to Jain.
The SME Compliance Problem the Framework Targets
Small and medium enterprises carry a disproportionate share of the CBAM burden. Jain identified the specific challenges for Indian SMEs: measuring embedded carbon emissions, getting those measurements independently verified, and ensuring the verifiers are recognized by EU authorities. Each step adds cost that large exporters can absorb and small ones cannot.
The commerce ministry is preparing a nationwide outreach programme to address the gap, extending to districts across India and including electronic tools aimed at small businesses, Jain said. The goal is to explain what the FTA contains and how companies can use it before the agreement comes into force.
The domestic carbon price engagement provision has a second-order effect worth noting. It creates a direct incentive for India to make its carbon pricing mechanism operational and credible, because every tonne priced domestically and recognized by the EU is a tonne not taxed at the border. That links the FTA to the development of India’s Carbon Credit Trading Scheme, where the stringency of intensity targets will now have trade implications, not just domestic ones.
What Companies Should Watch
For exporters of steel, aluminium, cement and fertilisers into the EU, the near-term action is unchanged: CBAM obligations under the definitive regime are already live, and the annexure does not suspend them. What changes is the medium-term planning horizon. Verifier recognition and carbon price deduction provisions could materially reduce compliance costs from 2027, but only if the implementing details survive ratification.
For buyers sourcing from India, the annexure reduces the risk of abrupt supply disruption from CBAM non-compliance, particularly among smaller suppliers. For project developers and investors, the domestic carbon price engagement clause strengthens the case that India’s carbon market infrastructure will need to mature quickly, which supports demand for verification capacity, MRV technology and credit supply in the Indian market.
The watch items are concrete: the FTA signing date, the published text of the CBAM annexure, EU decisions on recognizing Indian verifiers, and the operational launch of India’s domestic carbon pricing. Each will determine whether the framework becomes a real cost reducer or remains a negotiating artifact.
