India–EU FTA becomes climate platform linking trade, hydrogen and carbon markets, says Climate Trends

India-EU deal: The conclusion of the long-awaited India-EU free trade agreement is increasingly seen as more than just a traditional trade agreement, with climate policy and clean energy cooperation forming a critical pillar of the deal. The Climate Trends Initiative, a consulting and capacity-building initiative, said the agreement emerges as a platform for convergence between trade and climate, reflecting how climate considerations are now being integrated into global economic partnerships.

Climate trends have indicated that the climate dimension of the India-EU FTA is not accidental. It depends on a series of ongoing institutional frameworks between the two sides. “The Clean Energy and Climate Partnership (CECP), first signed in 2016, continues to coordinate joint efforts on renewable energy, energy efficiency and clean hydrogen. Green hydrogen, in particular, has become a growing pillar of cooperation, with both India and the EU identifying it as a key component of their long-term decarbonisation pathways,” the statement noted.

Climate trends noted Together with the CECP, the EU-India Trade and Technology Council (TTC) has been leading cooperation in clean energy technologies, including regulatory interoperability and green R&D. India’s prominent participation in the European Hydrogen Week in Rotterdam last year underscored its ambition to emerge as a hydrogen exporter to Europe.

This ambition is supported by a rapidly expanding domestic electrolyser manufacturing base, with India targeting $10 billion in FDI to build 10 GW of electrolysis capacity by 2030 – an important component of the EU’s future hydrogen import needs. These threads, which include hydrogen, clean grids and resilient infrastructure, are increasingly seen as complementary to the FTA, even if they are not yet fully codified in the text of the treaty.

Aarti Khosla, founder and director of Climate Trends, said the deal reflects strategic alignment at a moment of extreme geopolitical uncertainty, particularly around climate goals and the green industry.

“The EU is already India’s largest trading partner, and the agreement can serve as the foundation for a more ambitious strategic partnership that goes beyond trade, providing a stable anchor to promote economic growth, build resilience, improve energy security and foster a future-ready, collaborative relationship. Both India and the EU face a common challenge in building clean energy industries without creating concentrated dependencies, but the complementarities are strong, the opportunity is great, and the timing is right. A deeper partnership anchored on clean technologies can enhance resilience not only for both of them,” said Madhura Joshi, Program Leader, Asia at E3G: “This is very important for the regions, but also for global clean energy supply chains.”

Carbon limit adjustment mechanism

Another layer of complexity linking climate and trade is the European Union’s carbon border adjustment mechanism, the world’s first carbon tariff on imports, which is currently in transition. While the CBAM program poses tangible cost risks to Indian exporters – estimated at $2-4 billion annually once fully implemented in 2026 – it has also become a catalyst for dialogue on aligning India’s nascent carbon market with EU standards. Under the FTA, India got a most-favored-nation clause to ensure it is not treated less favorably than other countries under EU carbon rules. The agreement also includes cooperation on the recognition and verification of carbon pricing and verification systems in India, as well as financial and technical support to help Indian exporters reduce emissions and meet new climate-related trade requirements.

The mother of all deals

From a trade perspective, the FTA is expected to double the volume of bilateral trade, which currently stands at about €124 billion (US$136 billion), within five years. The deal, which Commerce Minister Piyush Goyal and European Commission president Ursula von der Leyen called the “mother of all deals,” gives preferential access to about 99% of Indian exports to the EU, unlocks annual savings of 4 billion euros, and eliminates tariffs of up to 10% on goods worth $33 billion. For India, this serves as a partial offset for climate-related trade costs and provides strategic insulation against renewed protectionist risks, especially from the United States.

The deal also signals deeper financial support for the energy transition. The European Investment Bank has already allocated €2 billion to support climate resilient infrastructure in India through the Alliance for Resilient Infrastructure, signaling the EU’s readiness to support trade commitments with patient capital.