India and the European Union are close to finalizing a free trade agreement expected early next year. But the EU's Carbon Border Adjustment Mechanism (CBAM), fully operational since January 2026, adds a carbon tax on imported goods like steel. This creates a tension between tariff liberalization and carbon tariffs for Indian exporters. Indian steel exports to the EU are among the most carbon-intensive compared to competitors like Turkey and South Korea, who already have preferential access. The FTA will help close that gap on tariffs, but CBAM penalties will still hit Indian exports hard unless production shifts to lower emissions. The EU also announced a separate 50% steel tariff and reduced import quotas, compounding the challenge. For India to benefit from the FTA, pairing trade liberalization with low-carbon industrial strategy is essential. The article explores whether CBAM is genuine climate policy or disguised protectionism, and what it means for India's long-term export competitiveness.
