India–EU trade pact anchors climate action at the core of economic cooperation

The India–European Union free trade agreement announced on January 27 represents a decisive step towards embedding climate policy directly into the architecture of global commerce, marking a shift away from trade deals that treat environmental concerns as side issues, NDTV reported.

The agreement, finalised after nearly two decades of negotiations, is being seen as a landmark in climate–trade convergence. It reflects a shared understanding that future competitiveness will depend on how effectively economies decarbonise while sustaining growth. Rather than offering sweeping exemptions from climate-linked trade measures, the pact focuses on building institutional frameworks that help align standards, pricing mechanisms and technology pathways between India and the EU.

According to climate policy experts, the deal signals a turning point in how India and Europe approach the intersection of climate ambition and market access. Anjal Prakash, a climate researcher associated with the Intergovernmental Panel on Climate Change, has noted that while the agreement offers only limited immediate relief from the EU’s Carbon Border Adjustment Mechanism (CBAM) for Indian exports such as steel and aluminium, it lays the groundwork for deeper technical cooperation. This includes alignment on carbon accounting and pricing systems, which could gradually strengthen the ability of Indian exporters to decarbonise and remain competitive in European markets, NDTV reported.

A key feature of the agreement is its emphasis on clean energy collaboration, particularly green hydrogen. The creation of dedicated platforms and task forces around hydrogen production, storage and supply chains underlines the strategic importance both sides attach to the fuel. For India, hydrogen aligns with its long-term energy transition and industrial decarbonisation plans. For the EU, it offers a pathway to secure diversified, low-carbon energy imports as it phases down fossil fuel dependence.

The trade pact also builds on existing institutional arrangements, notably the Clean Energy and Climate Partnership launched in 2016. This partnership has coordinated joint initiatives on renewable energy deployment, energy efficiency and grid modernisation. European financial institutions have supported solar projects and transmission upgrades in India, helping integrate larger volumes of renewable power while maintaining affordability. The FTA reinforces these efforts by linking them more explicitly to trade, investment and industrial cooperation.

Observers say the agreement carries strategic significance beyond climate policy. Aarti Khosla, founder of Climate Trends, has highlighted that the deal reflects a convergence of interests between a rising economic power and an established one at a time of heightened geopolitical uncertainty. The alignment on climate goals, clean technology and green industry sends a strong signal to investors about where capital and markets are heading, while also rebuilding confidence in multilateral cooperation shaped by strategic choices rather than bloc politics, NDTV reported.

Green technology and hydrogen cooperation are further supported by the EU–India Trade and Technology Council, which is working on regulatory interoperability, clean-tech standards and collaborative research and development. India’s growing visibility at European clean energy forums, including hydrogen-focused events, underscores its ambition to emerge as a reliable supplier in future low-carbon supply chains. This ambition is backed by plans to scale up domestic electrolyser manufacturing capacity and attract significant foreign investment over the coming decade.

From a broader economic perspective, the agreement is being viewed as a potential anchor for a more ambitious strategic partnership. Madhura Joshi of E3G has argued that the FTA could serve as a foundation for cooperation that goes beyond tariff reductions, helping both sides build resilience, improve energy security and reduce overdependence on concentrated supply chains. With clean technology at the centre, the partnership could strengthen not only India and Europe but also global clean energy value chains.

One of the most complex aspects of the negotiations was the EU’s CBAM, the world’s first carbon tariff on imports, which enters full implementation in 2026. For Indian exporters in emissions-intensive sectors such as steel, aluminium and cement, CBAM presents a significant cost risk. Trishant Dev of the Centre for Science and Environment has pointed out that at higher carbon prices, the mechanism could sharply increase the landed cost of Indian exports. While the EU has not diluted the regulation, early signals of cooperation on technical coordination, emissions verification and targeted decarbonisation support suggest some responsiveness to Indian concerns, NDTV reported.

India has secured assurances under the FTA that it will not be treated less favourably than other EU trading partners under evolving carbon rules. The agreement also envisages cooperation to help Indian firms meet new climate-related trade requirements, including support for developing robust carbon measurement and verification systems, as well as access to finance and technology to cut emissions.

From New Delhi’s standpoint, the trade pact helps balance climate-related trade risks with new growth opportunities. Government and industry assessments indicate that expanded access to EU markets, particularly in services and diversified manufacturing, could significantly lift exports over the next decade. The agreement also strengthens India’s positioning as a “China Plus One” manufacturing alternative for European companies seeking resilient and politically stable supply chains.

Trade commitments under the FTA are being reinforced by capital flows. European institutions, including the European Investment Bank, have committed substantial funding towards climate-resilient infrastructure in India, signalling a willingness to back market access with long-term investment and technical expertise.

Taken together, the India–EU free trade agreement functions as both a hedge against rising global protectionism and a springboard for climate-aligned growth. As global trade fragments under the combined pressures of geopolitics and climate urgency, the pact stands out as an effort to demonstrate that cooperation—rather than isolation—can still shape the future rules of the global economy.