India welcomes the UK’s decision on carbon levy
India has welcomed the United Kingdom's decision to recognise India's domestic carbon pricing mechanism for the purposes of the UK's forthcoming carbon border levy.
Explaining the principle behind the move, the Commerce Secretary stated that a company already paying for its carbon emissions in its home market should not be asked to pay again for the same emissions by the importing country — the "no double taxation" principle.
The decision is expected to reduce the carbon-related compliance cost for Indian exporters of goods such as steel, aluminium, and cement when the UK's carbon border mechanism takes effect.
The outcome is being viewed by trade officials as a template India intends to use in pressing for similar recognition of its carbon pricing scheme from the European Union.
The "No Double Taxation" Principle in Carbon Border Mechanisms
When an exporting country already imposes a domestic price on carbon (via a tax, cap-and-trade scheme, or credit-trading system), a Carbon Border Adjustment Mechanism (CBAM) in the importing country is designed to deduct that already-paid price from the border levy, rather than charging the full rate again. This prevents the same tonne of emitted carbon from being priced twice — once at production, once at the border.
Key Details
- The principle mirrors, conceptually, double-taxation-avoidance agreements (DTAAs) in income tax law, but applies to carbon pricing rather than income; there is no single binding international treaty mandating this for carbon levies — each importing jurisdiction (EU, UK) sets its own qualifying criteria and offset methodology unilaterally.
- The UK Treasury publishes an indicative list of "qualifying overseas carbon pricing schemes" that meet its criteria; India's Carbon Credit Trading Scheme (CCTS) was added to this list, alongside schemes of the EU, China, Japan, South Korea, Singapore, and South Africa.
- The offset is typically calculated by comparing the effective domestic carbon price paid per tonne of CO₂-equivalent against the importing country's benchmark carbon price, with only the shortfall charged at the border.
The Commerce Secretary's framing directly restates this principle: because CCTS already prices carbon for Indian producers in covered sectors, the UK's acceptance of CCTS avoids a second, duplicate charge on the same exported goods.
CBAM as a Trade-Diplomacy and WTO-Consistency Issue
Carbon border mechanisms sit at the intersection of climate policy and trade law. Developing countries have argued that unilateral CBAMs could function as disguised protectionism or non-tariff barriers inconsistent with WTO principles such as non-discrimination (Most Favoured Nation and National Treatment) and the UNFCCC's principle of "common but differentiated responsibilities and respective capabilities" (CBDR-RC).
Key Details
- The EU's CBAM moved into its "definitive regime" (full financial liability for importers) from January 1, 2026, after a transitional reporting-only phase that began in October 2023.
- The UK's CBAM is legislated to begin January 1, 2027, initially covering only direct emissions, with indirect emissions deferred to 2029 or later.
- India has raised CBAM concerns in bilateral trade negotiations with both the UK and EU and has flagged the issue in multilateral trade fora, arguing that carbon border levies should not offset market access gains negotiated under free trade agreements.
By securing recognition from the UK first, India gains a working precedent and negotiating leverage to seek equivalent carbon-price recognition from the EU, where a bilateral trade agreement has been concluded separately from the carbon-levy question.
India's Carbon Credit Trading Scheme (CCTS) as the Underlying Domestic Instrument
The CCTS is the statutory carbon market that makes India's "already paid" claim verifiable and hence acceptable to a foreign regulator.
Key Details
- Enabled by the Energy Conservation (Amendment) Act, 2022 (in force from January 1, 2023); the scheme was formally notified on June 28, 2023, and is administered by the Bureau of Energy Efficiency under the Ministry of Power.
- It replaced the earlier Perform, Achieve and Trade (PAT) energy-efficiency scheme and currently applies to energy-intensive sectors — iron & steel, cement, aluminium, fertilisers, petroleum refining, pulp & paper, and textiles — covering CO₂ and PFC emissions, with registration having opened from January 1, 2025.
Without a legally notified, government-administered carbon price such as CCTS, India would have had no verifiable domestic carbon cost for the UK to recognise and offset against its CBAM liability.
- UK CBAM: effective January 1, 2027; covers direct emissions initially, indirect emissions deferred to 2029 or later.
- EU CBAM: entered definitive (financially binding) regime January 1, 2026; transitional reporting phase ran October 2023–December 2025.
- CCTS legal basis: Energy Conservation (Amendment) Act, 2022 (in force January 1, 2023); notified June 28, 2023; regulator: Bureau of Energy Efficiency, Ministry of Power.
- UK's qualifying carbon-pricing list (as of the recognition) includes India, the EU, China, Japan, South Korea, Singapore, and South Africa.
- CCTS-covered sectors account for roughly 16% of India's total greenhouse gas emissions.