Climate diplomacy has moved beyond the days of a single grand bargain

Environmental governance is fragmenting into trade deals and beyond, and the Global South is adapting.

Sharon Sarah Thawaney

13 February 20263 min read

The EU–India Free Trade Agreement was not just another market-opening deal. It marked a quiet turning point in climate governance, showing how power is shifting from multilateral negotiating tables to the mechanics of trade. Climate governance is fragmenting into many arenas, and trade policy is becoming only the most visible of them.

What began as a conventional tariff bargain became the vehicle for enforcing one of Europe’s most contentious climate tools, the Carbon Border Adjustment Mechanism (CBAM). The episode captures a broader reality – as the multilateral system fragments, the Global South is being pushed to adapt to a climate regime shaped increasingly by commercial leverage rather than collective consensus.

For much of the Global South, that change has been unsettling. CBAM is widely seen as a de facto tariff on late industrialisers, built on standards designed in the North with little regard for equity or development constraints. The EU frames it as a tool to prevent carbon leakage and level the playing field.

In a more protectionist and volatile global order, economic realities too narrowed the options. The United States’ turn inward signalled a world where trade security was eclipsing climate ambition. For both nations – it was about weathering the storm. For India, the choice became less about rejecting CBAM in principle and more about limiting its damage in practice.

Developing countries are learning to operate in a fragmented climate order where traditional leadership is fading.

That pressure produced a pragmatic strategy. Rather than rejecting CBAM outright or accepting it on European terms, it used trade diplomacy to negotiate safeguards. These reportedly include parity clauses to ensure that any future flexibilities granted to other partners would also apply to India, technical cooperation on emissions measurement and verification, a €500 million fund to support aspects of the green transition, and consultation mechanisms to address trade distortions if CBAM impacts intensify.

This tactical turn does not erase deeper grievances. Frustration persists because the multilateral climate system has long under-delivered on their commitments. For instance, around 65% of global climate finance still comes as loans rather than grants, and funding remains skewed toward mitigation while adaptation and loss and damage struggle for resources. Against that backdrop, trade-linked climate measures feel like new obligations piled onto old, unmet promises.

The EU–India deal therefore signals something larger. It shows how developing countries are learning to operate in a fragmented climate order where traditional leadership is fading and green conditionalities are rising.

What is emerging is not a single Global South strategy but a spectrum shaped by bargaining power. Larger emerging economies can leverage export diversity and diplomatic bandwidth to negotiate how green standards are implemented, while smaller and more vulnerable states often have little choice but to comply. India’s CBAM posture is a clear example of this shift toward translating the principle of common but differentiated responsibilities into operational safeguards in the arenas where trade and climate governance now intersect.

However, bargaining over implementation is only a partial remedy. It can soften the edges of specific measures like CBAM, but it cannot correct the structural asymmetries embedded in who sets standards and who bears the costs. A credible Global South strategy must also target the deeper imbalances in global standards and climate finance. That tension surfaced clearly at COP30, where debates over equity, implementation, and transition support gained renewed prominence even as firm financial commitments remained elusive.

The BRICS countries coordinated more closely than before, calling for predictable finance flows and greater use of local-currency lending. India, speaking for both the BASIC group and the Like-Minded Developing Countries, reinforced the principle of common but differentiated responsibilities, reflecting a growing convergence in how major developing economies are meandering a fragmented climate order.

How far the EU–India deal ultimately softens CBAM’s impact remains uncertain, especially until the legal text is fully scrutinised. It is clear, however, that the next phase of climate diplomacy is unlikely to revolve around a single grand bargain. It will be shaped by a patchwork of deals, standards, and sectoral rules.

In this landscape, larger emerging economies such as India or the other BRICS countries can become crucial intermediaries, amplifying the concerns of smaller and more vulnerable states that lack bargaining power. The Global South is learning – though unevenly but pragmatically – to bargain, adapt, and contest the terms of engagement.

About the author

Sharon Sarah Thawaney

Sharon Sarah Thawaney works in the Office of the Vice President (Development Studies) at Oserver Research Foundation, India.

Topics

India Climate & environment EU