New Strategic EU-India Agenda
On September 17, 2025, the European Union (EU) and India announced a new comprehensive strategic agenda, known as the New Strategic EU-India Agenda. It focuses on five key pillars:
- Prosperity and sustainability
- Technology and innovation
- Security and defense
- Connectivity and global issues
- Enablers across pillars
A significant development within this agenda is the potential linking of the Indian Carbon Market (ICM) with the Carbon Border Adjustment Mechanism (CBAM). This linkage allows carbon prices in India to be deducted from CBAM levies at the EU border, potentially preventing double penalties for Indian exporters and rewarding early decarbonization.
Challenges in Operationalizing the Linkage
Despite the potential benefits, several hurdles exist:
- India's Carbon Credit Trading Scheme (CCTS): The scheme, often called ICM, is still developing and lacks the robustness of the EU's Emissions Trading System (ETS).
- Institutional Gaps: India lacks an institutional equivalent to the EU's independent regulators and emissions registries, which impairs market integrity.
- Carbon Price Disparity: The carbon price in India ranges from €5 to €10, significantly lower than the EU's €60 to €80.
- Political Risks: Indian industries might resist compliance costs, fearing a "double burden" of expenses.
- Controversy and Political Tension: Developing countries, including India, view CBAM as protectionist, risking disputes with the EU.
Strategic and Political Risks
Additional strategic and political risks include:
- Sovereignty Concerns: CBAM allows the EU to influence India's domestic carbon policies, potentially compromising India's policy space.
- WTO Legalities: The linkage is contingent on resolving legal disputes at the World Trade Organization (WTO).
Conclusion
The Indian carbon market and CBAM linkage is a significant agreement under the strategic agenda. If successful, it could shield Indian exporters, accelerate industrial decarbonization, and serve as a model for North-South carbon market cooperation. However, weak domestic architecture, misaligned carbon prices, and political contradictions threaten its viability. Comprehensive collaboration is crucial for a smooth transition.
