Carbon Competitiveness: India at the Net Zero–Trade Nexus

India’s increasing solar potential, young workforce and cost competitive industries could help it become a leader of the clean economy. But its coal dependence is leaving the world’s fastest growing major economy increasingly exposed as trade partners — including the EU and UK — extend carbon pricing to cover high emission imports, and multinational companies shift to low-carbon supply chains.

Our report, Carbon Competitiveness: India at the Net Zero–Trade Nexus, finds that unless it accelerates decarbonisation, India’s exports will be increasingly exposed to penalties on carbon-intensive goods — putting billions in trade revenue and millions of jobs at risk as climate policies expand in breadth and depth.

Key findings:

• India’s export engine runs on net zero markets: 68% of India’s $446bn in exports — supporting 32 million jobs — go to net zero-committed countries. Over half (55%) are to countries with net zero targets enshrined in law or official policy documents.

• Carbon inefficiency is a competitive risk: India’s $150 billion Professional Services sector (including high value sectors such as IT outsourcing and call centres) ranks among the most carbon-intensive globally per million dollars of output. Competitor countries can serve the same markets up to 20 times more carbon efficiently.

• Export-related jobs will become increasingly exposed: 7.5 million Indian jobs depend on exports to markets with active Carbon Border Adjustment Mechanisms (CBAMs), such as the EU. Another 4.7 million jobs are linked to countries planning or considering similar measures.

• Global firms are decarbonising supply chains: 231 major multinational companies in India’s 10 top export markets — with combined annual revenues of $8.1 trillion — have Scope 3 (full value chain) coverage, meaning many are actively shifting toward lower-carbon suppliers. Another 45 companies, with $1.2 trillion in combined revenues, have Scope 3 emission reduction targets.

A growing share of India’s trade is vulnerable to emissions-based measures — from Carbon Border Adjustment Mechanisms (CBAMs) to rising buyer scrutiny and value chain decarbonisation. With 68% of exports going to countries with net zero targets — supporting an estimated 32 million domestic jobs — India’s trade success is increasingly tied to its ability to cut emissions.

Implications of the EU CBAM

The EU accounts for more than 17% of India’s total trade value, supporting nearly 7.5 million Indian jobs. Yet India’s $5.7 billion of exports to the EU now face rising costs under the CBAM (equating to 8% of India’s total exports to the EU, which directly support 143,000 jobs). The carbon measure will be fully implemented in 2026 across iron and steel, aluminium, cement, fertilisers, hydrogen, and electricity — and will expand in scope over time. India’s industries face a choice: accelerate clean growth to secure exports and investment — or risk losing market share and jobs to lower carbon competitors.

India’s export profile is diversified but exposed:

• Professional and IT services, India’s two largest export sectors, accounted for $150 billion in 2023. But high carbon intensity threatens future market share as emissions become a procurement priority.

• Agriculture, while just 2% of export value, supports over a third of export-linked jobs — highlighting the economic and social cost of inaction.

• Manufacturing and textiles, both employment-rich and emissions-intensive, face growing pressure in key net-zero markets, especially in the EU.

The United States, India’s top export destination, took in one-fifth of total exports last year — with services, jewellery, and textiles dominating. However, its relatively low job return (17%) reveals how carbon-intensive, capital-heavy exports are failing to deliver broad-based benefits.

India’s trade with the European Union, worth $114 billion and supporting 7.5 million jobs, is particularly exposed to CBAM expansion. While current rules apply to basic metals, India’s EU-bound exports in chemicals, textiles and petroleum are much larger — and next in line for scrutiny as the CBAM scope widens.

India’s position in future supply chains is also at stake. In electronics, for example, India’s CO₂ intensity is five times higher than Vietnam’s, a significant disadvantage as firms look to diversify amid US-China tensions.

As countries intensify climate action and carbon becomes a metric of competitiveness, India’s export economy stands at a crossroads. But in the absence of deeper decarbonisation and stable policy signals, rising electricity demand and continued coal reliance will prolong high embodied emissions in both goods and services. This risks undermining export competitiveness across the economy — including India’s booming professional services sector, which emits more CO₂ per unit of output than nearly every other major exporting country.

Yet this moment also presents opportunities. India has begun to decouple fossil fuel use from demand growth, added record-breaking clean energy capacity, and launched initiatives to mobilise clean industrial capital. Combined with its vast youth workforce, dynamic service economy and renewable potential, India is well placed to lead on lower-carbon industrial innovation — if it accelerates the right reforms.

To seize the opportunity, India should act decisively. That means:

• Accelerating grid decarbonisation to cut emissions across all sectors.

• Sending clear policy signals to build investor confidence — especially on clean tech manufacturing and coal transition.

• Using the new Climate Finance Taxonomy to unlock capital for low-carbon growth.

• Updating its Nationally Determined Contribution (NDC) in 2025 to reflect real economy transformation and signal export competitiveness.

This isn’t just about emissions — it’s about jobs, economic self-interest and India’s long-term stake in global trade.

Crucially, despite the US’s immovability on climate diplomacy and multilateral trade, other international partners should step up. For carbon-related trade measures like the EU and UK CBAMs to be seen as fair, they should be paired with financial, technical, and capacity-building support for lower-income countries — including the delivery of long-standing commitments under the Paris Agreement.

India’s economy is at an inflection point. The choices made now — at home and abroad — will determine whether it can keep pace with China in the economic race to a low-carbon future, or fall behind as climate policy and trade become increasingly intertwined.