EU may reject India’s push for carbon tax exemption: FT

The European Union may turn down India’s request for an exemption from its incoming carbon border tax, a move that threatens to slow momentum in trade talks the two sides have been trying to conclude this year, Financial Times reported, citing four people familiar with the matter.

Officials told the FT the EU is unlikely to accept India’s proposal to charge exporters a domestic levy on products such as steel, aluminum and fertilizers that would otherwise fall under the bloc’s Carbon Border Adjustment Mechanism (CBAM).

Brussels has argued that India’s suggested framework, a value-based fee instead of one linked to the carbon intensity of manufacturing, would do little to cut emissions and could set a precedent other countries would seize on.

The CBAM, which will start imposing financial obligations on imports in phases before full tariffs take effect in 2026, is designed to prevent producers outside Europe from undercutting companies that already face steep carbon-permit costs under the EU’s emissions trading system.

Indian officials have previously called the mechanism a “unilateral” barrier that penalizes developing economies still reliant on carbon-heavy industrial processes.

The dispute lands at a delicate moment. The EU is India’s biggest goods trading partner, and both sides have been working to finish a free-trade agreement by year-end after reviving negotiations in 2022 following a decade-long freeze.

Leaders from both sides, including Prime Minister Narendra Modi and European Commission president Ursula von der Leyen, have publicly backed a deal this year.

According to the FT, Brussels is open to adjusting CBAM liabilities for Indian exports if New Delhi introduces its own domestic carbon-pricing mechanism, an option India is consulting on but has yet to commit to. Without that shift, European officials indicated an exemption is off the table.

India has been vocal about the risks. Its exporters, especially in steel and cement, face the prospect of double-digit levies at a time when the country is attempting to modernize manufacturing and expand global market share.

New Delhi has also raised concerns about other EU green-trade rules, including restrictions linked to deforestation-related supply chains, arguing that sudden regulatory shifts could hurt its ability to compete.

Top trade officials from both sides met in Brussels in late October to search for ways to bridge the gap, but India has said issues around CBAM, autos, agricultural products and non-tariff rules “still require further discussion.”