CBAM and the New Reality of EU–India Trade

Sarah J4 min read

How the EU’s Carbon Border Adjustment Mechanism has moved from theory to enforcement - and why it now sits at the centre of EU–India economic negotiations.

CBAM: from climate policy to trade reality

The Carbon Border Adjustment Mechanism (CBAM) is no longer a future policy experiment. As of January 2026, it has entered its implementation phase and is now a concrete cost, compliance and strategic issue for exporters into the European Union.

For India, this marks a turning point: CBAM is no longer just a climate discussion, but a live trade issue shaping negotiations, supply chains and pricing decisions.

At its core, CBAM applies a carbon price to certain imported goods to reflect the cost EU producers already face under the EU Emissions Trading System (ETS). The objective is simple and explicit: prevent carbon leakage and ensure that climate ambition inside the EU is not undercut by cheaper, higher-emission imports from abroad.

What exactly is CBAM?

CBAM requires EU importers to account for the greenhouse gas emissions embedded in specific categories of goods. When fully phased in, importers must surrender CBAM certificates corresponding to those emissions. The certificate price mirrors the EU ETS carbon price. If a carbon price has already been paid in the country of origin, that amount can be deducted, subject to verification.

CBAM currently covers highly carbon-intensive sectors: iron and steel, cement, aluminium, fertilisers, electricity and hydrogen. These sectors matter disproportionately in global trade - and several are core export categories for India.

The critical shift in 2026

Between 2023 and 2025, CBAM operated in a transition phase. Importers were required to report emissions, but no financial adjustment applied. That period is now over.

From January 2026, CBAM moved into its definitive phase. Reporting is no longer a dry-run exercise; it is part of an enforcement framework integrated with EU customs systems. While some elements, such as the full phase-out of free ETS allowances, will be gradual through the early 2030s, CBAM is now operational in principle. For exporters, the message is clear: emissions data quality, verification and cost exposure now directly affect access to the EU market.

Why CBAM matters specifically for India

India is not being singled out, but it is unavoidably exposed. The EU is one of India’s largest trading partners, and several CBAM-covered sectors feature prominently in bilateral trade.

The immediate implications are threefold.

First, cost and competitiveness. Indian exporters whose products have high embedded emissions face a potential price disadvantage unless they can demonstrate lower carbon intensity or deduct an equivalent domestic carbon price. In sectors like steel and fertilisers, even a modest carbon price can materially affect margins.

Second, data and compliance. CBAM is as much a reporting regime as a pricing mechanism. Exporters must produce credible, auditable emissions data aligned with EU methodologies. This requires new monitoring, reporting and verification (MRV) capabilities - often across complex, multi-tier supply chains.

Third, strategic positioning. CBAM shifts the basis of competition. Price alone is no longer enough; carbon efficiency becomes a trade asset. Firms that invest early in cleaner processes are better positioned not only for EU market access, but for future trade regimes that may follow similar logic.

CBAM and EU–India trade negotiations

CBAM has inevitably entered the centre of EU–India trade discussions, including the long-running negotiations toward a free trade agreement (FTA).

From the EU’s perspective, CBAM is non-negotiable in principle. It is embedded in EU climate law and tied to the integrity of the ETS. From India’s perspective, CBAM raises concerns about fairness, development space and administrative burden, particularly for emerging-market producers.

The negotiation space lies in the details. India is pushing for clarity on how domestic climate policies - present and future - can be recognised under CBAM. Technical cooperation on emissions accounting, transitional support for exporters and predictable implementation timelines are now key discussion points. CBAM, in this sense, has become a lever: not a tariff to be bargained away, but a framework within which trade concessions, cooperation and equivalence may be negotiated.

The broader signal CBAM sends

Beyond EU–India relations, CBAM signals a deeper shift in global trade governance. Environmental performance is being hard-wired into market access. This does not replace traditional trade rules, but it increasingly overlays them.

For India, this creates a strategic choice. One path is defensive: minimise short-term disruption and seek carve-outs. The other is forward-looking: treat CBAM as an external pressure that accelerates domestic decarbonisation, strengthens export competitiveness and aligns Indian industry with the direction of global regulation.

What exporters should do now

For companies exporting to the EU, CBAM is no longer abstract. Practical steps are needed:

Map exposure to CBAM-covered products and inputs
Build reliable emissions data systems aligned with EU rules
Assess cost impacts under different carbon price scenarios
Engage early with EU importers, who carry the formal CBAM obligations
Invest in efficiency and low-carbon processes where feasible

Waiting for policy clarity is no longer a viable strategy. The compliance clock has started.

The bottom line

CBAM marks a structural change in how the EU trades with the world. For India, it is both a challenge and an opportunity. The challenge is immediate: higher compliance costs and tougher market access conditions. The opportunity lies in using this moment to modernise industrial processes, strengthen negotiating leverage and position Indian exporters for a carbon-constrained global economy.

CBAM is not a passing regulation. It is a preview of how climate policy and trade policy are converging - and EU–India economic relations will increasingly be shaped at that intersection.

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Hyderabad-based Skyroot Aerospace successfully launched Vikram-1, India’s first privately developed orbital launch vehicle, from the Satish Dhawan Space Centre in Sriharikota on July 18, 2026. The rocket lifted off at 12:05:30 p.m. Indian Standard Time as part of Mission Aagaman, meaning “arrival.”Around 15 minutes after launch, Vikram-1 successfully deployed payloads into a low Earth orbit at an altitude of approximately 450 kilometres. ISRO confirmed that two satellites—Skyroot’s SCOPE and a satellite from Grahaa Space—were injected into orbit. Other payloads remained attached to the upper stage to conduct in-orbit experiments.India has operated orbital launch vehicles through the Indian Space Research Organisation since the successful launch of the Rohini satellite aboard SLV-3 in 1980. The significance of Mission Aagaman is that Vikram-1 was developed and launched by a private Indian company, although ISRO and the Indian National Space Promotion and Authorisation Centre provided facilities, technical support, safety oversight and regulatory clearances.The Vikram-1 RocketVikram-1 is a small-satellite launch vehicle standing approximately 22 metres tall. It is designed to carry payloads of up to 350 kilograms into low Earth orbit.The four-stage vehicle consists of three solid-fuel stages and a liquid-fuel orbital adjustment module. Its upper stage is powered by a 3D-printed liquid engine and is designed to support precise orbital deployment. The rocket also incorporates carbon-composite structures, avionics and thermal-protection technologies developed by Skyroot.The Vikram launch-vehicle series is named after Vikram Sarabhai, the scientist widely regarded as the father of India’s space programme.Skyroot is positioning Vikram-1 as a dedicated and rideshare launcher for small satellites requiring customised orbital deployment. The company argues that such missions can provide customers with greater control over launch timing and orbital destination than travelling as secondary payloads on larger rockets.Payloads and ExperimentsThe mission carried multiple customer payloads and in-orbit experiments from Indian and international organisations.ISRO has officially confirmed that two satellites, SCOPE and Grahaa, were successfully placed into low Earth orbit. The remaining payloads were carried on the upper stage for in-orbit experiments.Before launch, the announced mission manifest included:Skyroot’s SCOPE satelliteGrahaa Space’s SOLARAS S3 satelliteA technology demonstration from German space company DCUBEDEmbrace, a robotic arm experiment developed by Cosmoserve Space for orbital-debris captureThe announced manifest also included symbolic payloads: a floral-shaped artwork called Cosmic Bloom and a miniature 18-karat gold rocket honouring Indian scientific figures C.V. Raman, Vikram Sarabhai and A.P.J. Abdul Kalam. These items were listed before launch, but official post-launch statements have not separately confirmed the operational status of every individual experiment.Mission Aagaman was intended to test Vikram-1’s propulsion, avionics, telemetry, stage separation, guidance, navigation and control systems under actual flight conditions. Skyroot described the flight as the first of a planned series of development missions ahead of routine commercial operations.From Vikram-S to Vikram-1Skyroot Aerospace was founded in 2018 by former ISRO engineers Pawan Kumar Chandana and Naga Bharath Daka.The company completed its first spaceflight in November 2022 with Vikram-S, a suborbital technology-demonstration rocket launched under Mission Prarambh. That flight made Skyroot the first private Indian company to launch a rocket into space from Indian soil, although Vikram-S did not enter orbit.Vikram-1 represents a significantly more demanding technical achievement. Reaching orbit requires a rocket not only to climb above Earth’s atmosphere but also to accelerate its payload to the horizontal velocity needed to remain in orbit. The vehicle must complete a carefully timed sequence of propulsion, stage-separation and navigation operations before deploying its payloads.India opened more of its space sector to private participation in 2020 and subsequently established a framework through IN-SPACe for private companies to access ISRO facilities and technical expertise. For Vikram-1, ISRO supported solid-motor casting and testing, liquid-engine testing, vehicle integration, trajectory analysis and launch-pad operations.Reaction and Next StepsPrime Minister Narendra Modi called the successful launch a defining moment in India’s space journey. He said growing private-sector participation was opening new frontiers and accelerating innovation, adding that the achievement would encourage young people to “dream bigger and innovate fearlessly.”Skyroot said Mission Aagaman was a test flight and that it expects to conduct additional development flights before beginning routine commercial launches. The company ultimately aims to provide frequent, dedicated launch services for small satellites.The achievement does not replace India’s longstanding government space-launch capability. Instead, it expands the country’s space ecosystem by demonstrating that an Indian private company can independently develop an orbital-class launch vehicle and successfully place satellites into orbit with institutional support from ISRO and IN-SPACe.Sources: Indian Space Research Organisation, Prime Minister’s Office of India, Reuters, Skyroot Aerospace and Space.com.Image courtesy: Skyroot AerospaceSEINET is an execution focused network for operators building partnerships and growth in EU-India-UK corridor in four key clusters - Space, Deep Tech, Defense and Energy. Apply to sign up www.startupeuropeindia.net

Sat, Jul 18, 2026