India has sharply criticized the European Union’s Carbon Border Adjustment Mechanism (CBAM), warning that unilateral carbon taxes on imports could ignite a wave of retaliatory trade measures from developing economies.
Speaking at an industry conference in New Delhi this week, Commerce and Industry Minister Piyush Goyal said the EU’s proposed carbon tariff plan is “very, very irrational” and risks undermining trade relations. “We will not accept unfair treatment under the guise of climate action,” Goyal stated. “If Indian exports are targeted, we will be forced to take retaliatory steps.”
The EU’s CBAM, currently in its transitional phase, is set to come into force in 2026. It will impose tariffs on carbon-intensive imports such as steel, cement, aluminium, fertilizers, and electricity, products in which India has a significant export stake. The policy aims to align foreign producers with EU climate standards by charging them the carbon cost equivalent under the EU Emissions Trading System (ETS).
Indian policymakers, however, argue that CBAM penalizes emerging economies that are still building their industrial capacity. Industry estimates suggest the policy could lead to effective tariffs of 20% to 35% on Indian exports to Europe, threatening sectors vital to the country’s economy.
“We are not climate deniers,” Goyal said. “India is committed to the energy transition, but climate measures must be fair, inclusive, and based on dialogue, not protectionism disguised as environmentalism.”
The EU maintains that CBAM is designed to prevent “carbon leakage,” where industries relocate to countries with laxer climate rules. But developing nations view the policy as a veiled form of green protectionism. Several countries, including China, Brazil, and South Africa, have raised concerns at the World Trade Organization, arguing that CBAM could violate core trade principles if it’s not accompanied by climate finance or technology transfer.
India’s warning comes at a pivotal time. Trade talks with both the EU and the UK have already grown more complex, as both regions consider similar carbon adjustment mechanisms. The UK plans to introduce its own CBAM in 2027.
For countries in the Global South, the risk is not only economic exclusion but also being locked out of future green supply chains. Without adequate financing or transitional support, many fear they will be unfairly penalized for emissions-intensive industries that are essential to their growth.
As CBAM moves from proposal to policy, the EU faces growing pressure to ensure the mechanism is not only environmentally effective but also geopolitically and economically just. India’s assertive stance may now catalyze broader resistance among emerging economies—and complicate global efforts to align trade with climate policy.
📦 What Is CBAM?
The Carbon Border Adjustment Mechanism (CBAM) is the European Union’s landmark policy to prevent “carbon leakage”—the shifting of emissions-intensive industries to countries with weaker climate regulations.
Here’s how it works:
- Scope: Initially applies to imports of cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen.
- Mechanism: Importers must report emissions embedded in their goods and, from 2026, purchase CBAM certificates to cover them.
- Goal: Ensure foreign producers face the same carbon costs as EU firms under the ETS, thereby levelling the playing field and encouraging global decarbonisation.
- Controversy: Critics say CBAM could unfairly impact developing nations and act as a trade barrier if not paired with climate finance or technical support.
