As highlighted in our last edition, this week's lead story focuses on the escalating tensions between India and the European Union (EU) over the implementation of carbon border taxes. As the EU moves to link the environment with trade, India is gearing up to implement its own carbon border tax, signaling its dissatisfaction with the EU's approach. This decision carries significant implications for both countries and has the potential to reshape the dynamics of international trade and environmental governance.

The EU's carbon border adjustment mechanism (CBAM) is viewed by Indian officials as a form of customs duty. Concerns are raised that the CBAM, which comes into effect in January 2026, could expand its coverage and affect developing countries like India. Experts argue that linking the environment and trade has the potential to distort global trade and that World Trade Organization (WTO) rules do not explicitly address this connection. It is important to recognize that this development reflects a broader global trend, as several developed nations, including Japan, the UK, and the US, consider similar legislation.

In this regard, India is actively working on its own carbon pricing system and seeking global recognition to avoid adverse impacts on its exports. The government is also forming an inter-ministerial group to address the effects of CBAM and similar measures proposed by developed nations. Indian officials emphasize the importance of recognizing differentiated responsibilities among countries in addressing climate change, based on differences in economic development and contribution to environmental preservation. This story encourages a deeper understanding of the evolving landscape of environmental governance and international trade.