India-EU deal: The conclusion of the much-anticipated Free Trade Agreement (FTA) between India and the European Union is increasingly seen as more than a conventional trade pact, with climate policy and clean energy cooperation forming a central axis of the deal. Climate Trends, a consultancy and capacity-building initiative, said the agreement is emerging as a platform for climate-trade convergence, reflecting how climate considerations are now being incorporated into global economic partnerships.

The climate dimension of the India-EU FTA, noted Climate Trends, is no accident. It is based on a series of ongoing institutional frameworks between the two parties. “The Clean Energy and Climate Partnership (CECP), first signed in 2016, continues to coordinate joint efforts in renewable energy, energy efficiency and clean hydrogen. Green hydrogen in particular has become a growing pillar of cooperation, with India and the EU identifying it as central to their long-term decarbonisation pathways,” he noted.

Climate trends noted together with the CECP, the EU-India Trade and Technology Council (TTC) has boosted collaboration on clean energy technologies, including regulatory interoperability and green research and development. India’s prominent participation in the European Hydrogen Week in Rotterdam last year highlighted its ambition to emerge as a hydrogen exporter in Europe.

This ambition is supported by a rapidly expanding domestic electrolyser manufacturing base, with India targeting $10 billion in foreign direct investment to build 10 GW of electrolyser capacity by 2030, a major component of the EU’s future hydrogen import needs. These lines, which cover 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 time of high geopolitical uncertainty, particularly around climate goals and green industry.

“The EU is already India’s largest trading partner and the agreement has the potential to serve as the basis for a more ambitious strategic partnership that goes beyond trade, providing a stable anchor to drive economic growth, build resilience, enhance 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 clean energy industries, but the concentrated opportunities are strong and the dependencies are important. A deeper partnership anchored in clean technologies could strengthen resilience not only for both regions, but also for global clean energy supply chains,” said Madhura Joshi, E3G’s Asia Program Head.

Carbon border adjustment mechanism

Another layer of complexity linking climate and trade is the EU’s Carbon Border Adjustment Mechanism (CBAM), the world’s first carbon tariff on imports, which is currently in a transition phase. While CBAM poses a tangible cost risk to Indian exporters, estimated at $2-4 billion annually once fully implemented by 2026, it has also become a catalyst for dialogue to align India’s emerging carbon market with EU standards. Under the FTA, India has secured a most-favoured-nation clause to ensure it is not treated less favorably than other countries under the EU’s carbon rules. The agreement also includes cooperation to recognize India’s carbon pricing and verification systems, as well as financial and technical support to help Indian exporters reduce emissions and meet new climate-related trade requirements.

Mother of all deals

From a trade perspective, the FTA is expected to double bilateral trade, currently around 124 billion euros ($136 billion), within five years. Dubbed the “mother of all deals” by Commerce Minister Piyush Goyal and European Commission President Ursula von der Leyen, the deal grants preferential access to 99% of Indian exports to the EU, unlocks €4 billion in annual savings and eliminates tariffs of up to 10% on goods worth $33 billion. For India, this acts as a partial offset to climate-related trade costs and provides strategic insulation against renewed protectionist risks, particularly from the United States.

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