The EU–India FTA places clean energy cooperation and calibrated CBAM flexibilities at the core of a broader strategic partnership, with impact hinging on how rules, finance, and standards are operationalised
After almost two decades of intermittent talks, India and the European Union (EU) formally sealed their long-pending Free Trade Agreement on January 27, 2026, bringing closure to one of the most protracted trade negotiations undertaken by either side. The accord promises wide-ranging tariff liberalisation across goods and services, inaugurates a parallel framework for security cooperation, and together signals a leap in bilateral engagement between the world’s fourth- and second-largest economies.
Finalised at the 16th India–EU Summit in New Delhi, the agreement is widely seen as a strategic response to an increasingly volatile and fragmented international environment shaped by increasing protectionism, geopolitical tensions, and the rise of carbon-linked trade measures. Hailed as the ‘mother of all deals’ in more ways than one, the FTA may also serve as a bridge where trade and climate priorities intersect.
As the third- and fourth-largest greenhouse gas emitters globally, both India and the EU bear significant responsibility in driving global decarbonization efforts while ensuring energy security and economic growth.
Climate action and the clean energy transition also occupied a central place in this evolving partnership. As the third- and fourth-largest greenhouse gas emitters globally, both India and the EU bear significant responsibility in driving global decarbonization efforts while ensuring energy security and economic growth. Both have articulated ambitious climate commitments, with India’s pledge to achieve net-zero by 2070 and the EU’s target of climate neutrality by 2050 requiring accelerated investments in clean technologies, energy infrastructure, and resilient supply chains.
Institutional cooperation on climate and energy between India and the European Union was already in place well before the conclusion of the FTA. The EU–India Clean Energy and Climate Partnership (CECP), launched in 2016, has long served as the principal framework for advancing collaboration across a broad spectrum of priorities, including renewable energy integration, energy efficiency, offshore wind development, smart grids, and green hydrogen. Anchored in shared commitments to the Paris Agreement and the Sustainable Development Goals (SDGs), the partnership reflects not merely a bilateral agenda but a common approach to global climate governance.
Among the key outcomes of the deal is the creation of a dedicated green hydrogen task force to support clean energy production, facilitate technology and knowledge sharing, and advance industrial decarbonisation.
Green hydrogen, in particular, has moved to the forefront of India–EU climate cooperation, with both sides increasingly viewing it as indispensable to their long-term decarbonisation strategies. Among the key outcomes of the deal is the creation of a dedicated green hydrogen task force to support clean energy production, facilitate technology and knowledge sharing, and advance industrial decarbonisation. This initiative comes at a strategic moment, as India positions itself as a prospective supplier of green hydrogen and its derivatives to European markets, backed by plans to mobilise nearly US$10 billion in foreign investment to develop 10 gigawatts of electrolyser capacity by 2030.
This ambition is already translating into action, with India establishing its largest green hydrogen–based ammonia project on the country’s east coast, aimed squarely at export markets in Europe. Once operational, the facility is expected to produce up to 1.5 million tonnes of green ammonia annually, signalling India’s entry into the global top tier of green hydrogen producers. The project will integrate close to 2 gigawatts of alkaline electrolyser capacity, supported by 7.5 gigawatts of renewable energy and 2 gigawatts of pumped-storage hydropower to enable round-the-clock production. This unusually ambitious configuration is designed to overcome the intermittency challenges that have constrained many green hydrogen ventures elsewhere, underscoring India’s intent to compete not only on cost, but on reliability and scale.
Additionally, the European Union has also pledged technical expertise and financial backing to support the decarbonisation of India’s steel and aluminium industries, including through its €500 million Green Transition Assistance package. The contours of this support, however, remain to be fully clarified. Key questions concerning allocation mechanisms, eligibility conditions, and disbursement timelines are still under discussion, with funding likely to be tied to specific projects and released on the basis of measurable performance outcomes rather than upfront commitments.
The European Union has also pledged technical expertise and financial backing to support the decarbonisation of India’s steel and aluminium industries, including through its €500 million Green Transition Assistance package. The contours of this support, however, remain to be fully clarified.
One of the most closely watched aspects of the deal was the European Union’s Carbon Border Adjustment Mechanism (EU-CBAM), designed to curb carbon leakage by imposing tariffs on emission-intensive exports from non-EU countries. The mechanism is currently in a transitional phase and is expected to become fully operational later this year. While India’s exports exposed to CBAM account for only 0.2 percent of GDP, the impact is highly concentrated. Iron and steel alone make up nearly 90 percent of these exports, leaving the sector particularly vulnerable. This has further raised concerns that carbon-based border measures could undermine India’s export competitiveness, raise production costs in key industrial segments, and impose additional compliance expenses of US$2–4 billion annually on hard-to-abate sectors such as steel, aluminium, and cement.
Under the CBAM-related arrangements agreed as part of the EU–India FTA, India has secured a set of forward-looking assurances aimed at limiting potential trade disruptions. The FTA includes a commitment that any flexibilities extended by the EU to third countries under the CBAM framework would also apply to India. It also envisages deeper technical cooperation, notably on the recognition of domestic carbon pricing mechanisms and accredited verifiers, alongside provisions for financial assistance and targeted support to help Indian producers reduce emissions and adapt to emerging carbon compliance requirements. Commerce and Industry Minister Piyush Goyal further stated, “The Government has taken up CBAM and the interests of our exporters like no one ever has, finding creative solutions through dialogue and trust rather than rigid, ‘my way or the highway’ positions.”
The FTA includes a commitment that any flexibilities extended by the EU to third countries under the CBAM framework would also apply to India.
While this signals a positive and promising intent, particularly to streamline verification processes and improve mutual recognition of methodologies, no formal simplifications have yet been notified.
The India–EU FTA is undoubtedly a landmark, but it represents only the beginning of a long journey. Much of the agreement’s promise, whether in green hydrogen, clean energy manufacturing, or CBAM-related safeguards, will hinge on implementation, clarity on funding and verification mechanisms, and sustained collaboration on technology, standards, and investment frameworks. Both partners would also have to deepen their engagement in joint research and innovation efforts to accelerate the development of market-ready clean energy solutions. The Trade and Technology Council (TTC) could play a pivotal role by broadening its mandate to include clean energy manufacturing and resilient supply chains, with a focus on critical technologies such as solar PV modules, wind turbine components, and advanced battery systems. Technology transfer and climate finance will remain essential to addressing asymmetries in capabilities and accelerating a just net-zero transition. The EU has also indicated significant financial backing for India’s green transition, including a €2 billion commitment from the European Investment Bank for climate-resilient infrastructure. Initiatives such as the EU’s €300 billion Global Gateway strategy, along with co-financing frameworks, could mobilise large-scale investments into decarbonisation projects. If implemented effectively, the deal and these complementary measures could serve as a blueprint for how trade, technology, and climate policy can reinforce each other in a carbon-conscious global economy.
Gopalika Arora is Deputy Director at the Centre for Economy and Growth, Observer Research Foundation.
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Gopalika Arora is Deputy Director at the Centre for Economy and Growth, Observer Research Foundation. She leads the Centre’s work on climate and energy, focusing on ...
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