The UK has officially recognized India's Carbon Credit Trading Scheme (CCTS) as a qualifying criterion for pricing relief under its carbon border adjustment mechanism (CBAM), providing significant relief for Indian exporters facing double taxation on carbon costs. According to an official communication from the UK's HM Treasury addressed to the Bureau of Energy Efficiency, the CCTS has been included in the UK's published indicative list of overseas carbon pricing schemes assessed as qualifying criteria under the Carbon Border Adjustment Mechanism (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations 2026. As reported by Business Standard, Indian exporters could avoid bearing the full carbon cost again when their products enter the UK, with the relief not given automatically - UK importers will have to provide required evidence and meet verification conditions under UK law. This recognition comes as a major breakthrough for businesses that have been seeking clarity on carbon pricing obligations in international trade, with the commerce ministry pursuing this matter with the UK for long. As reported by PTI, citing an official, "This will reduce the effective CBAM liability on Indian goods, directly benefiting Indian exporters to the UK."
The decision provides the Indian government with a strategic advantage in ongoing trade negotiations, particularly given the comprehensive economic and trade partnership between India and the UK that was implemented on July 15. As reported by officials, the government was previously trying to include carbon tax in trade negotiations but UK authorities did not agree to the proposal at that time. Armed with this exemption, the government will make a fresh bid for similar dispensation in the European Union where a trade deal has been finalized and is expected to be operationalized next year. The recognition addresses concerns about double taxation where companies face carbon pricing in both home and export markets, with the amount of relief that can be claimed depending on the effective carbon price to which the goods in question have been subject. India had been particularly concerned about the impact of the UK's CBAM on its exports, particularly products such as iron and steel, aluminium, fertiliser, hydrogen, ceramics, glass and cement. According to Business Standard, "The recognition could help prevent Indian exporters from facing carbon costs twice -- first under India's carbon pricing system and again under the UK's CBAM."
The relief mechanism will be implemented through a structured process with specific requirements for exporters. According to the official communication, UK importers of eligible Indian goods covered under CBAM will be able to seek carbon price relief corresponding to the effective carbon price borne by those goods under the CCTS, subject to satisfying the evidence and verification requirements prescribed under UK law. The financial support for implementation of the CCTS would be met by the Bureau of Energy Efficiency from fees and charges collected from entities under the scheme and its own resources. This approach ensures that companies are not unfairly penalized for carbon pricing already paid in their home markets, with a liable person for UK CBAM still required to satisfy applicable evidence and verification requirements. As reported by Business Standard, "The amount of relief will depend on the effective carbon price applicable to the goods and the carbon cost already paid under India's system."
The carbon border adjustment mechanism (CBAM) represents a carbon pricing tool designed to equalize carbon costs and prevent carbon leakage, with the UK government deciding to implement its CBAM starting in 2027. Under this mechanism, importers of certain carbon-intensive products such as iron and steel, aluminium, fertiliser, hydrogen, ceramic, glass and cement have to pay charges based on carbon emissions linked to those goods. The UK CBAM came into force from January 1, 2027, covering imports in sectors including aluminium, cement, fertiliser, hydrogen, iron and steel. The recognition of India's scheme addresses the UK CBAM's core principle of avoiding double taxation on goods that have already borne an eligible carbon price in their country of origin. The UK government decided in December 2023 to introduce its CBAM to ensure that imported carbon-intensive products face a carbon cost comparable to that borne by British manufacturers under the country's Emissions Trading Scheme. The UK government's decision reflects sustained technical-level engagement between the two governments on the design and implementation of the CCTS, with cooperation continuing through the UK-India Energy Memorandum of Understanding and the Partnership for Market Implementation.
The recognition comes at a significant time as merchandise trade between India and the UK stood at USD 25.1 billion in 2025-26, while bilateral services trade reached USD 35.4 billion in 2024. According to experts, certain India's exports to the UK may be impacted due to Britain's decision to introduce carbon tax on products from 2027. However, this recognition could help avoid charging carbon tax on the same product twice, meaning that if the carbon price paid in India qualifies, the UK can give relief for that amount when calculating UK CBAM liability. The two governments are committed to continued dialogue on carbon pricing, including on the interaction between the CCTS and UK CBAM rules, further strengthening India-UK engagement in the carbon market sector. Under the Comprehensive Economic and Trade Agreement (CETA) signed on July 15, India benefits from the UK's decision to eliminate import duties on several major product categories, including duties of up to 70% on processed food, 21.5% on marine products, 18% on engineering goods and auto components, 16% on leather and footwear, 12% on textiles and garments, and 8% on chemicals and pharmaceuticals. India has protected several sensitive sectors from the agreement, including dairy products, cereals, millets, edible oils, oilseeds, apples and vegetables.
