As the European Union advances its green agenda, India is proactively adapting its policies to maintain and enhance its trade relationship with the bloc. The EU's ambitious environmental regulations, including the Carbon Border Adjustment Mechanism (CBAM) and the Deforestation-free Products Regulation (EUDR), are prompting India to make significant shifts across various sectors. These adjustments aim to ensure that Indian exports remain competitive in the EU market while also aligning with global sustainability standards.

The EU's CBAM, set to be fully implemented by 2026, imposes a carbon tax on imports of carbon-intensive goods, such as steel, aluminum, and cement. This mechanism is designed to level the playing field between EU producers, who are subject to stringent carbon pricing regulations, and non-EU producers who may not face similar costs. For India, a major exporter of these goods, CBAM poses a tangible economic burden. Indian industries, particularly those relying on coal as a primary energy source, face the challenge of reducing their carbon footprint to avoid tariffs.

Similarly, the EUDR prohibits the import of commodities linked to deforestation, including cocoa, coffee, palm oil, soya, rubber, cattle, and wood. This regulation requires companies to prove that their products do not come from recently deforested land or contribute to forest degradation. Given India's significant agricultural exports to the EU, compliance with the EUDR is crucial.

In response to these challenges, India is undertaking several policy shifts. The government is exploring ways to incentivize industries to adopt greener technologies and reduce carbon emissions. This includes revising existing policies like the National Steel Policy and the Production Linked Incentive (PLI) scheme to prioritize carbon efficiency. The development of a domestic Carbon Credit Trading System (CCTS) is another step towards integrating market-based mechanisms to address environmental concerns.

India is also actively engaging with the EU to negotiate more favorable terms under CBAM. This includes seeking recognition of India's existing carbon pricing measures, such as the coal cess, as equivalent to EU standards. Successfully negotiating such terms could significantly reduce the carbon tax burden on Indian exports, easing the transition for key industrial sectors and safeguarding market access.

Furthermore, India is investing in green technologies and renewable energy sources to reduce its carbon footprint and meet international expectations. This includes promoting the transfer of green technologies from the EU, particularly in areas like energy efficiency, waste management, and pollution control. Collaboration with the EU on circular economy initiatives, which promote recycling and sustainable production methods, is also a priority.

These policy shifts are not merely reactive measures to comply with EU regulations; they also represent an opportunity for India to embark on a transformative journey towards sustainability and resilience. By adopting strategic measures to mitigate the immediate impacts of CBAM and EUDR and investing in long-term environmental sustainability, India can navigate the challenges posed by the new policy landscape and enhance its global standing as a responsible trading partner.

However, challenges remain. Some stakeholders have expressed concerns that the EU's green trade policies could act as disguised trade barriers, limiting India's ability to export to Europe. There are also concerns about the impact of these regulations on smallholder farmers and tribal communities in India, who may face difficulties in complying with traceability requirements and other standards.

Despite these challenges, India's commitment to addressing climate change and promoting sustainable development is evident. By proactively adapting its policies and engaging in constructive dialogue with the EU, India aims to strike a balance between trade facilitation and environmental stewardship, ensuring a mutually beneficial and sustainable trade relationship. The EU-India Trade and Technology Council (TTC) serves as a crucial platform for these discussions, aiming to support trade relations, technology development and a green transition.