Climate change is the single most critical issue facing the world at this time, and trade-related matters change quickly with the demands of the times. While India tries to balance development along with climate responsibilities, incorporating climate standards into FTAs poses both an opportunity and a challenge for the country.

As trading partners sell each other on a more competitive basis, carbon pricing systems are being implemented, sustainable supply chains are being established, and Indian green trade regulation may give an edge in the next couple of decades. It is no longer just an altruistic goal to tie climate commitments to trade agreements; it has become a true strategic necessity linked to energy security, comparative advantage manufacturing, and investment flows around the world.

Emerging Landscape Of Climate-Linked Trade

Climate considerations are becoming integral to trade negotiations as advanced economies introduce regulatory frameworks such as carbon border adjustment mechanisms (CBAMs), sustainability-linked tariffs, and climate disclosure requirements. The European Union’s CBAM, for example, proposes levying taxes on high-carbon imports, directly affecting industries like steel, aluminum, and cement—sectors where India holds a significant export footprint.

According to the World Bank, India’s steel exports stood at approximately 9.5 million tonnes in 2024, with Europe accounting for nearly 14 per cent of that trade (World Bank, 2025). Without climate-compliant supply chains, tariff barriers could erode India’s export competitiveness and restrict its access to premium markets. Simultaneously, Free Trade Agreements (FTAs) are evolving beyond traditional tariff reductions to embed environmental standards, carbon reporting obligations, and green technology transfers.

The International Trade Centre’s 2024 report highlights that over 30 per cent of recent trade agreements now include climate-related provisions, a sharp rise from less than 10 per cent a decade ago (ITC, 2024). This reflects a structural shift in trade policy, where sustainability has become as central as market access. For India, this trend represents both a challenge and an opportunity.........

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