The climate impact of FTAs is becoming a defining issue for India’s trade negotiations, as carbon-linked rules like the EU’s CBAM increasingly shape market access and industrial competitiveness.

As India accelerates negotiations on free trade agreements (FTAs) with the European Union, United Kingdom, EFTA countries and the United States, a parallel transformation is unfolding — one where trade policy is increasingly shaped by climate-linked conditions.

A recent policy discussion summarised in India’s FTAs: Trade, Climate and Strategic Choices, organised by Climate Trends, argues that the EU’s Carbon Border Adjustment Mechanism (CBAM) represents not a marginal environmental tool, but a structural shift in global trade governance. The deeper question is whether India’s trade engagements are effectively becoming instruments of climate policy — and if so, under whose terms.

CBAM: From Environmental Tool to Structural Trade Instrument

Ajay Srivastava, Founder and CEO of GTRI, cautioned against viewing CBAM as a narrow carbon levy limited to a handful of sectors. While the current scope covers steel, aluminium, cement, fertilisers, hydrogen and electricity, the EU has stated its intention to expand the mechanism to all industrial products by 2033.

“What most people ignore about CBAM is that it will not only hurt six products,” Srivastava said. “After a few years when CBAM is in full form, then the normal CBAM liability on exports will range anywhere between 20% to 35%, and even 50% or more for products like aluminium.”

India’s average applied tariffs into the EU are currently around 3–3.5%. CBAM, by contrast, could impose carbon-linked charges many times higher. “Instead of 3% custom duties… exporters may pay 20%-40% under CBAM. And in return, all EU goods will be entering India at zero tariffs. Such a deal appears asymmetric,” he added.

From this perspective, CBAM is less a climate safeguard and more a structural replacement of tariffs with carbon-linked entry costs — one that sits outside the formal FTA framework while reshaping its economic value.

Climate Compliance as Market Entry Condition

The broader concern is cumulative compliance. CBAM does not operate in isolation. The EU Deforestation Regulation, supply-chain traceability rules, and ESG-linked disclosure expectations together create what analysts describe as an embedded climate cost for market access.

Colette van der Ven, Founder and Director of Tulip Consulting, noted that CBAM was a key sticking point in EU–India negotiations. “Even if the Indian government’s press statements suggest that there are provisions around MFN treatment, that may, in practice, not have very much value… giving country-specific flexibilities was already off the cards for the EU.”

In effect, climate-linked measures are emerging as non-negotiable features of trade architecture.

Divergent Impact: Large Firms vs MSMEs

The climate-trade shift is not uniform in its impact.

Large integrated producers such as Tata Steel and JSW, according to van der Ven, are relatively insulated. Many operate European subsidiaries, have internal monitoring, reporting and verification (MRV) systems, and possess capital for cleaner technologies. For them, CBAM is a manageable compliance cost.

However, the situation is starkly different for MSMEs.

Ajay Srivastava pointed to early evidence from CBAM’s reporting phase, which began in October 2023. “In FY25, our exports of steel and aluminium to the EU were down by 24%. Why? Because MSMEs could not supply data, and EU-based importers stopped placing orders from them. So, MSMEs will be the hardest hit. It will soon be a game only for large players.”

Van der Ven added that default carbon values under CBAM are punitive. “Even if you have relatively clean production, but you cannot measure it, you are still going to be getting a default value that is a lot higher than the actual carbon emissions… That means that your competitiveness level goes down.”

The key barrier is not necessarily emissions intensity, but data asymmetry and compliance infrastructure.

Trade Policy as Domestic Climate Policy

Suranjali Tandon, Associate Professor at NIPFP, framed the issue more fundamentally: “All matters of trade policy are also matters of domestic economic policy.”

She argued that Indian firms will require domestic carbon pricing, measurement systems, and industrial support mechanisms to respond effectively. “Indian companies need to have their own carbon pricing to be able to respond to such measures… The best thing that can be done is to have measurement systems in place while ensuring that there are domestic policies that support increasing production capacity.”

Without robust domestic support — incentives, certification regimes, transitional demand buffers — exporters may struggle to absorb external carbon costs.

Fragmented Global Carbon Regimes

A central tension lies in fragmentation. EU-bound exports account for roughly 20% of India’s trade. The remaining 80% flows to markets without CBAM-style requirements.

Srivastava highlighted the dilemma: Indian firms may need separate production processes for EU markets, raising costs across their operations. Producing “green” goods for a minority of export destinations could erode competitiveness elsewhere.

This fragmentation complicates investment decisions. Without globally harmonised carbon pricing, unilateral measures risk distorting trade patterns rather than aligning them.

Strategic Choices Ahead

The discussion suggests that FTAs are no longer purely about tariffs and quotas. They increasingly interact with carbon pricing systems, sustainability standards, and domestic regulatory reforms.

Recommendations emerging from the dialogue include:

>> Prioritising measurement and MRV infrastructure, especially for MSMEs

>> Designing selective emissions trading systems, beginning with large emitters

>> Aligning industrial, trade, and climate policies domestically

>> Viewing FTAs as platforms for cooperation, rather than solutions in themselves

Archana Chaudhary of Climate Trends summarised the broader shift: “Trade seems to be forcing domestic climate action and capital is being steered in that direction. These new trade deals and the carbon-linked rules are going to be shaping up India’s real economy.”

Climate Alignment or Competitiveness Risk?

The deeper climate perspective is complex. On one hand, CBAM aligns with long-term decarbonisation goals. On the other, its current design places disproportionate adjustment burdens on developing economies and smaller firms.

Van der Ven suggested that alignment exists beneath the friction. “Beyond the differences, there is alignment between the EU and India in wanting to decarbonize. We must think towards these win-win opportunities along the supply chain.”

The outcome, however, will depend less on individual FTAs and more on whether India can integrate trade, industrial, and climate strategies coherently at home.

As climate-linked trade measures proliferate, India’s FTAs may increasingly serve not just as economic agreements — but as de facto climate policy instruments reshaping the country’s industrial future.

Global warming is usually associated with rising temperatures—but a new Nordic report warns it could drive parts of northern Europe into far colder conditions if a major Atlantic ocean current collapses.

Greenland, Norway and Sweden could experience significantly colder climates as the planet warms, according to a new report by the Nordic Council of Ministers that examines the risks linked to a possible collapse of the Atlantic Meridional Overturning Circulation (AMOC).

The report, A Nordic Perspective on AMOC Tipping, brings together the latest scientific evidence on how global warming is slowing the AMOC—one of the world’s largest ocean circulation systems, responsible for transporting heat from the tropics to the North Atlantic. While a full collapse is considered unlikely, the authors warn that it remains possible even at relatively low levels of global warming, with potentially disruptive consequences for northern countries.

The Reversal

If the circulation were to weaken rapidly or cross a tipping point, the report notes, northern Europe could cool sharply even as the rest of the world continues to warm. Such a reversal would have wide-ranging effects on food production, energy systems, infrastructure, and livelihoods across the Nordic region.

“The AMOC is a key part of the climate system for the Nordic region. While the future of the AMOC is uncertain, the potential for a rapid weakening or collapse is a risk we need to take seriously,” said Aleksi Nummelin, Research Professor at the Finnish Meteorological Institute, in a media statement. “This report brings together current scientific knowledge and highlights practical actions for mitigation, monitoring and preparedness.”

A climate paradox

The AMOC plays a central role in maintaining the relatively mild climate of Northern Europe. As global temperatures rise, melting ice from Greenland and increased freshwater input into the North Atlantic are expected to weaken this circulation. According to the report, such changes could reduce heat transport northwards, leading to colder regional conditions—particularly during winter—even under a globally warming climate.

Scientists caution that the impacts would not simply mirror gradual climate change trends. Instead, an AMOC collapse could trigger abrupt and uneven shifts, including expanded sea ice, stronger storms, altered rainfall patterns, and rising sea levels along European coastlines. Some of these impacts would occur regardless of when or how quickly the circulation weakens.

The report also highlights global ripple effects. A slowdown of the AMOC could shift the tropical rain belt southwards, with potentially severe consequences for monsoon-dependent regions such as parts of Africa and South Asia, underscoring that AMOC tipping is not a regional concern alone.

Calls for precaution and preparedness

Given the uncertainty surrounding when—or if—the AMOC might cross a critical threshold, the report urges policymakers to adopt a precautionary approach. It stresses that any additional global warming, and prolonged overshoot of the 1.5°C target, increases the risk of triggering a collapse.

Key recommendations include accelerating emissions reductions, securing long-term funding for ocean observation networks, and developing an early warning system that integrates real-world measurements with climate model simulations. The authors argue that such systems should be embedded directly into policymaking to enable rapid responses.

The report also calls for climate adaptation strategies that account for multiple futures—including scenarios in which parts of Northern Europe cool rather than warm. It emphasises that AMOC collapse should be treated as a real and significant risk, requiring comprehensive risk management frameworks across climate, ocean, and disaster governance.

Science driving policy attention

The findings were developed through the Nordic Tipping Week workshop held in October 2025 in Helsinki and Rovaniemi, bringing together physical oceanographers, climate scientists, and social scientists from across Nordic and international institutions. The initiative was partly motivated by an open letter submitted in 2024 by 44 climate scientists, warning Nordic policymakers that the risks associated with AMOC tipping may have been underestimated.

By consolidating current scientific understanding and translating it into policy-relevant recommendations, the report aims to shift AMOC collapse from a theoretical concern to a concrete risk requiring immediate attention.

A new interdisciplinary study led by researchers from the University of Oxford has warned that excessive reliance on carbon dioxide removal (CDR) technologies could breach emerging legal guardrails and potentially undermine global net-zero climate goals.

The study examines the international legal framework governing how countries plan to use carbon dioxide removal to meet climate targets. Researchers argue that while CDR will be an essential part of climate action, overdependence on future removal technologies — instead of cutting emissions immediately — could create significant legal and climate risks.

Carbon dioxide removal refers to processes that remove CO₂ from the atmosphere and store it so it no longer contributes to global warming. Methods include nature-based solutions such as tree planting, as well as emerging engineered technologies.

The study analyses how international legal principles, including the harm prevention principle and due diligence obligations clarified by the International Court of Justice’s 2025 Advisory Opinion on Climate Change, apply to national climate strategies. According to the researchers, these legal standards require countries to pursue deep and rapid greenhouse gas reductions while also taking precautionary approaches toward large-scale CDR deployment.

Applying these standards could limit countries’ ability to rely on strategies that risk overshooting the Paris Agreement’s 1.5°C temperature target, which nations are legally obligated to minimise in both magnitude and duration.

“In an uncertain world, some states are gambling on the future deployment of CDR techniques to meet their climate targets in place of more ambitious near-term mitigation measures. This approach risks overshooting the Paris temperature goal and causing serious, pervasive and irreversible climate harms. Our findings emphasise that near-term emissions reductions and feasible CDR strategies are not only ethical imperatives – they are legal requirements,” Professor Lavanya Rajamani said in a media statement.

Researchers also highlighted that many current national climate plans rely on assumptions about future technologies that may not materialise at scale.

“States increasingly plan to meet their climate targets through large-scale removals, yet many of these plans rest on unclear assumptions and technologies that may not materialise. Legal guardrails are essential to avoid passing climate risks on to future generations and to ensure that CDR does not substitute for the emissions reductions urgently needed now,” Dr Rupert Stuart-Smith said.

The study identifies two major types of legal guardrails: substantive and procedural. Substantively, countries must prioritise emissions reductions over removals, ensure CDR strategies are technically and socially feasible, minimise environmental and social harm, and avoid excessive dependence on carbon removals conducted in other countries through international credits.

The authors points out that international law already provides a strong framework to assess national climate strategies, and that many existing plans may fall short of these requirements. Strengthening alignment with legal standards will require greater focus on immediate emissions cuts and improved transparency and realism in how carbon removal is integrated into climate strategies

Procedurally, countries must provide transparent information on projected emissions and removals, clearly distinguish between different CDR methods, and disclose assumptions used in long-term climate planning.

The authors points out that international law already provides a strong framework to assess national climate strategies, and that many existing plans may fall short of these requirements. Strengthening alignment with legal standards will require greater focus on immediate emissions cuts and improved transparency and realism in how carbon removal is integrated into climate strategies.

The study, Legal guardrails on states’ dependence on carbon dioxide removal to meet climate targets, is published in the journal Climate Policy and involves collaboration between researchers from the University of Oxford, Imperial College London, the International Institute for Applied Systems Analysis, Humboldt University of Berlin, and the Potsdam Institute for Climate Impact Research.