India–EU FTA Anchors Climate and Trade in a Fracturing Global Order

India, the world’s fastest growing major economy, and the European Union (EU) have concluded talks for a long-anticipated free trade agreement (FTA) expected to double bilateral trade—currently at €124 billion ($136 billion)—within five years.

The deal, dubbed by India’s Commerce Minister Piyush Goyal and European Commission President Ursula von der Leyen as  the “mother of all deals”,  will give preferential entry for 99 percent of Indian goods exported to the EU apart from allowing opportunities for skilled & semi-skilled Indians. It also unlocks €4 billion ($4.4 billion) in annual tariff savings and will slash tariffs up to 10 percent on India’s goods worth $33 billion, according to the government. This offers India strategic insulation against a renewed wave of US tariffs under a second Trump administration, while for the EU, it secures long-term access to a growing consumer and industrial market at the center of the Indo-Pacific.

“Every agreement stands on its own legs, and this is a wonderful agreement. It’ll be taken up for a legal scrubbing on a fast track basis...We do hope that we should be able to celebrate the entry into force of this agreement within calendar 2026 itself, ” said Piyush Goyal, India’s Commerce Minister speaking at a special briefing on the state visit of the President of the EU Council and the President of the EU Commission to India.

The FTA lands in a world geo-economic confrontation where tariffs, carbon taxes, and industrial policy have become powerful levers, as was evident at the World Economic Forum in Davos where US President Donald Trump threatened to sanction European firms over Arctic minerals. Both India and the EU came into this agreement looking to hedge against the resulting market volatility and  policy fragmentation. With New Delhi chairing BRICS this year and Brussels rethinking transatlantic dependence, the deal is a deliberate move to stitch climate and trade into a stable, rules-based alternative.

Crucially, this FTA is emerging as a platform for climate-trade convergence. The climate dimension is not incidental—it’s already embedded in ongoing India–EU frameworks. The Clean Energy and Climate Partnership (CECP), started in 2018, continues to coordinate joint work on renewables, energy efficiency, and clean hydrogen. Green hydrogen is a growing pillar in this partnership, with the EU and India both signalling the fuel’s centrality to their decarbonisation pathways.

Alongside CECP, the EU–India Trade and Technology Council (TTC), is driving clean energy tech coordination, including work on regulatory interoperability and green research and development. India’s prominent role at European Hydrogen Week in Rotterdam last year underscored its ambition to become a hydrogen exporter to Europe, supported by a growing domestic electrolyser manufacturing base, given India targets $10 billion FDI for 10 GW electrolysers by 2030—a pillar for EU import needs.  These strands—hydrogen, clean grids, and resilient infrastructure—are increasingly seen as complementary to the FTA framework, even if not formally encoded in treaty text yet.

Another layer of climate-trade complexity is the EU’s Carbon Border Adjustment Mechanism (CBAM), the world’s first carbon tariff on imports, currently in its transitional phase. While CBAM poses a real cost risk to Indian exporters—estimated at $2–4 billion annually when fully implemented in 2026—it is also driving negotiations on how India’s emerging carbon market might interface with EU standards.

The Clean Energy and Climate Partnership will expand to cover smart grids, storage, energy regulation, and diplomacy, while the Joint Working Group on Energy Security will resume work on diversifying reliable, affordable energy sources. A Wind Business Summit is planned to deepen collaboration on wind energy technologies, and the Green Hydrogen Task Force will be operationalised to support decarbonisation in hard-to-abate sectors, according to the EU statement.

The two sides will also scale cooperation on sustainable mobility—from aviation fuels and compressed biogas to e-mobility standards—and share know-how on electrolysers, fuel cells, and storage systems. Industrial decarbonisation efforts will focus on standard-setting for low-carbon materials like green steel and cement, alongside alignment of India’s carbon market with the EU’s Emissions Trading System. Adaptation and resilience remain core themes, with a focus on disaster preparedness and infrastructure strength through the Coalition for Disaster Resilient Infrastructure (CDRI). In the past, the European Investment Bank (EIB), another key EU institution, had already committed €2 billion in financing toward climate-resilient infrastructure in India through the CDRI. This is part of a broader signal that the EU is willing to back its trade commitments with patient capital and technical support in the energy transition.

The agreement also advances long-term industrial and strategic coordination. A new semiconductor framework will support joint R&D, talent exchange, and advanced chip design for AI applications.

Connectivity plans include the India–Middle East–Europe Economic Corridor and the EU–Africa–India Digital Corridor, anchored by the Blue Raman cable to secure high-speed digital infrastructure. Trilateral cooperation will grow in areas such as green mobility, energy systems, and digitalisation. Both sides have committed to deeper coordination in the UN and G20 and to advancing institutional reform to reflect present geopolitical realities. The agreement also reaffirms joint support for the Paris Agreement, successive COP outcomes, and national climate targets.

Under the CBAM provisions, India has secured a most-favoured nation clause to ensure it isn’t treated less favourably than other countries under EU carbon rules. The agreement also covers support to help Indian exporters meet new climate-related trade requirements — including cooperation on recognising India’s carbon pricing and verification systems, and financial help to cut emissions, according to the Indian statement.

The EU FTA acts as a partial offset, potentially boosting exports by up to $50 billion by 2031 through services and diversified markets, while cementing India's "China Plus One" role for resilient manufacturing. From Delhi's view, this diversifies away from US volatility without compromising core sectors.

Taken together, the FTA arrives as a hedge and a springboard that can help buffer India against protectionist headwinds from the US, while reinforcing the case for middle-power leadership as BRICS chair. It also offers the EU a blueprint for climate-integrated trade —spanning hydrogen markets, carbon pricing alignment, and green investment—that survives tariff shocks and geopolitical fragmentation.

Amitendu Palit, Senior Research Fellow and Research Lead (Trade and Economics) at the Institute of South Asian Studies at the National University of Singapore, said, "The India-EU FTA is a rare example for many other countries in this difficult geopolitical moment globally. It shows that political will can lead to decisive outcomes.  The last one year has been eye opening for the EU and India in more ways than one.  It shows the two sides realise how much they need to work with each other in a complicated geopolitical world. It shows that countries even with differences – India and  the EU have sharply diverging positions at the WTO – can work with each other while respecting the other partner’s red lines is significant. And the red lines on CBAM, agriculture and data security for instance, still remain works in progress. The Investment and GI agreements are pending. So a lot will depend on the legal scrubbing that will be done in the coming months.”