With the India-European Union (EU) free trade agreement (FTA) talks sprinting to the finishing line, we may see a drop in the EU’s already low tariff rates. After the recent meeting India-EU bilateral meeting, the Indian Government has indicated that EU’s regulation on Carbon Border Adjustment Measures (CBAM) and other regulations require further discussion, as these issues have higher sensitivities. The real test of the FTA will be its ability to address the CBAM and EU’s other complex regulations that increase the costs of any effective market access. While purporting to be in the interest of the environment, these EU measures are effectively aimed at keeping the cost-competitiveness of its domestic industry.

When the EU announced the Strategic EU-India Agenda in September, it claimed that carbon prices paid under India’s upcoming carbon credit trading scheme (CCTS) will be deducted from the CBAM price. It was only stating the obvious: The EU’s CBAM regulation allows all countries to deduct carbon price paid in any exporting country, subject to its verification by the EU. The worrying aspect was the EU’s implicit suggestion that only the concrete price paid under CCTS may be discounted from the CBAM price, and not the various other costs and taxes paid in India, including fuel excise taxes and levies, mandatory requirements under Indian law for purchase of defined portions of renewable energy, or purchase of renewable energy certificates in lieu........

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