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India’s instinctive response to climate-linked trade regulation has been to resist it. The EU’s Carbon Border Adjustment Mechanism is described as protectionist; deforestation and product-traceability rules as intrusive; and sustainability clauses in trade agreements as an attempt to impose rich-country standards on a developing economy. Some of this criticism is justified.
But green trade regulation is no longer a temporary irritant that can be negotiated away. EU carbon allowances for domestic producers are being withdrawn on a fixed schedule. The scope of carbon border adjustment is set to widen. Other economies with domestic carbon prices will face the same pressure to protect their producers. India must ask a more fundamental question: Can the demand and price signals created by these rules finance the early years of its own green industrialisation?
Most of the India of 2070 (the targeted net-zero timeline) is yet to be built. The country can continue to set up new power, steel, aluminium, chemical and transport systems around fossil fuels and then pay to replace them. Or, it could use the upcoming global green-trade rules to establish lower-carbon industries from the outset. Cleaner technologies are more capital-intensive and initially more expensive. The opportunity is to make regulated foreign markets pay part of that early cost while India builds scale and capability at home.
Green ammonia, for which India has discovered some of the world’s lowest prices, illustrates this approach. While domestic demand will take time to mature, India could export to Europe, Japan and Korea. Long-term export contracts could help finance the early plants, lower costs through scale and build an industry that then supplies green fertiliser at home, substituting imported natural gas.
Sustainable aviation fuel (SAF) offers a second example. ReFuelEU Aviation regulation began with a 2 per cent blending requirement in 2025 that rises sharply over time. Global production remains tiny and the fuel commands a premium over conventional jet fuel. Ethanol from the domestic petrol-blending programme can be diverted to make higher-value aviation fuel for exports, while EVs serve the domestic mobility market.
As carbon costs are loaded onto European primary steel, prices in Europe will rise. India could use the resulting price umbrella and export revenues to finance cleaner blast furnaces, more scrap-based capacity and eventually hydrogen-based production. In aluminium, India’s exposure will grow when indirect emissions from electricity are counted. Investments in recycled aluminium and smelters using clean power can derive an export advantage.
The world’s electrification will require vastly more transformers, cables, switchgear, batteries and solar equipment. Across the largest traded categories, a market of roughly $500 billion, China has about 30 per cent of exports while India has less than 2 per cent. Without an industrial response, electrical equipment could become one of India’s largest import bills as domestic demand surges. With one, it can become a major export engine. For example, India supplies nearly 20 percent of the UK’s non European transformer imports, while having a negligible share in Europe, which presents an opportunity.
There is also an opportunity in the compliance infrastructure itself. Carbon borders, deforestation rules and digital product passports all depend on trusted data. India built digital public infrastructure (DPI) that enables ubiquitous payments and communications at low costs. It should now build low-cost, interoperable systems for product-level carbon accounting, traceability and third-party verification. Becoming capable of tracking and verifying carbon at the lowest cost in the world would lower compliance costs and make our green products more competitive.
Finally, external pressure should be used to redesign India’s own recently established carbon market to incentivise decarbonisation. Carbon price (the fee emitters must pay for every tonne of greenhouse gas) needs to be $30-50 a tonne to change investment decisions in steel, hydrogen or fertiliser. At these levels, India also retains more of the carbon revenues under the CBAM regulations. Sector-level targets (like in Europe) are better than the current plant-specific targets, which perversely reward high emitters and penalise efficient plants.
India should contest protectionism, seek transition periods and demand that rich countries share technology and finance. But the primary aim should shift to enabling Indian firms to turn overseas green regulation into export advantage. For example, India could use bilateral trade and green-partnership agreements to secure mutual recognition of carbon accounting, testing and certification.
A durable path for India is to lower the carbon content of our production, capture the overseas markets that regulation creates and use it to build the industries the domestic economy will eventually need. This requires a shift in the mindset of both the government and industry.
The writer is a senior partner at McKinsey & Company. Views are personal
