A significant development has taken place in India-UK trade relations, with Britain recognising India’s Carbon Credit Trading Scheme (CCTS) under its Carbon Border Adjustment Mechanism (CBAM), a move that will bring some relief to companies exporting Indian goods to the UK.
Broadly, tax is levied on a product based on how much carbon pollution was generated during its manufacture. With this recognition, if carbon pricing has already been paid on a product in India, the same amount will not be taxed again in the UK, though companies will need to furnish appropriate documentation to claim this. The decision came after prolonged discussions between India’s Ministry of Commerce and UK officials. The UK already recognises the European Union’s Emissions Trading System along with 16 other carbon pricing mechanisms, and India’s CCTS has now been added to that list.
In fact, when the India-UK free trade agreement came into effect last May, India had sought a full exemption from CBAM, but that was not possible at the time. With Britain set to impose a carbon tax on products such as steel and aluminium from January 2027, there had been concerns about an additional burden on Indian exporters.
With the UK now recognising the CCTS, that burden could be somewhat reduced, though this is not a complete tax exemption — companies will still need to provide evidence that they have already paid the carbon price in India.