Overview On Thursday, January 1, 2026 , the Congress party raised significant concerns regarding the increasing costs of Indian exports to the European Union (EU) due to the EU's carbon tax. The party emphasized that the India-EU Free Trade Agreement (FTA), scheduled for signing later in January 2026 , must address this "unacceptable" non-tariff barrier to ensure fair trade practices. Key Developments Congress Party's Stance Jairam Ramesh , the Congress general secretary, highlighted the impending finalization of the much-anticipated India-EU FTA later in January 2026 . He pointed out the adverse effects of the EU's Carbon Border Adjustment Mechanism (CBAM) on Indian exporters. Impact of EU's Carbon Border Adjustment Mechanism (CBAM) Implementation Date: Beginning January 1, 2026 , Indian steel and aluminium exporters to the 27-nation European Union will be subject to a carbon tax under the EU's CBAM. Export Value Decline: In FY 2024-25 , India's exports of steel and aluminium to the EU averaged $5.8 billion , a decrease from $7 billion in the previous year, as EU importers prepared for the introduction of CBAM. Price Reduction: According to the think-tank GTRI, many Indian exporters may need to reduce prices by 15-22% to enable their EU importers to cover the carbon tax. Documentation Costs: The stringent documentation requirements for carbon emissions accounting and reporting are adding further costs for Indian exporters. Call for Action Mr. Ramesh stressed that any India-EU FTA must account for this non-tariff barrier to protect the interests of Indian exporters. UPSC Relevance GS Paper 2: International Relations This news highlights the complexities of international trade agreements and the impact of environmental policies on trade relations. The India-EU FTA and the EU's CBAM are crucial topics for understanding India's foreign policy and economic diplomacy. GS Paper 3: Economy The impact of CBAM on Indian exports, particularly in the steel and aluminium sectors, is relevant to the study of India's trade balance, export competitiveness, and industrial policy. The analysis of non-tariff barriers and their effects on the Indian economy is also essential. GS Paper 3: Environment The EU's CBAM is an example of using trade policy to address climate change. Understanding the environmental implications of trade and the role of carbon taxes in promoting sustainable practices is important. Important Facts EU's Carbon Border Adjustment Mechanism (CBAM): A carbon tax on imports based on their carbon content. India-EU Free Trade Agreement (FTA): A trade agreement aimed at reducing trade barriers between India and the EU. FY 2024-25 Export Value: $5.8 billion (steel and aluminium to the EU). GTRI Estimate: 15-22% price cut for Indian exporters.