CBAM Feels Unfair, But India Can Gain

EU's Carbon Border Adjustment Mechanism: A Challenge for Developing Nations

The European Union's Carbon Border Adjustment Mechanism (CBAM) has raised concerns among developing nations, including India, due to its perceived unfairness.

• The CBAM requires developing nations to meet EU's stringent climate norms or face financial penalties.
• The mechanism is seen as unfair, given the relatively small contribution of developing countries to CO₂ emissions compared to developed nations.
• The India-EU Free Trade Agreement (FTA) does not provide any exemption from CBAM, further heightening concerns.

India's Concerns and Capacity Burden

India's demand for an exemption from CBAM must be understood in the context of the significant financial, technological, and capacity burden it would place on industries, particularly Micro, Small, and Medium Enterprises (MSMEs).

The two economies have vastly different capacities, with the EU's nominal per-capita GDP of around $46,000 in 2025, compared to India's $2,800.

A New Approach to CBAM

However, just because CBAM may seem unfair does not mean it has to be detrimental. India can turn it to its advantage by approaching talks on investment agreements with a clear sustainability lens and a concrete plan to decarbonise and transform its industrial base.

• Focus on attracting investments and partnerships in clean energy supply chains, clean tech manufacturing, and decarbonisation technologies.
• Leverage the complementarity of the two economies to create strategic opportunities that strengthen resilience and sustainability.
• Engage with CBAM proactively to catalyse India's industrial transformation, rather than merely posing a constraint.

Opportunities for India

The proposed EU-India platform for cooperation on climate action, to be set up by June, along with ₹500 million in likely conditional EU support over the next two years, will help.

However, it will clearly not suffice. India must take a proactive approach to CBAM and leverage the opportunities it presents to transform its industrial base and strengthen its resilience and sustainability.