U.K. recognises India's carbon credit scheme under its carbon tax mechanism: official
The United Kingdom has included India's Carbon Credit Trading Scheme (CCTS) in its indicative list of qualifying carbon pricing mechanisms under the UK's Carbon Border Adjustment Mechanism (CBAM)
The CCTS was assessed as meeting the qualifying criteria under the Carbon Border Adjustment Mechanism (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations, 2026
With this recognition, UK importers of eligible Indian goods covered under CBAM will be able to seek "carbon price relief" corresponding to the effective carbon price already borne by those goods under the CCTS, subject to evidence and verification requirements
The recognition follows technical-level engagement between India's Ministry of Commerce and Industry and the UK government on the design of the CCTS
This is expected to lower the effective CBAM liability on Indian exports to the UK once the UK CBAM takes effect
Carbon Border Adjustment Mechanism (CBAM) — UK and EU variants
A CBAM is a trade tool that puts a carbon price on imports of specified carbon-intensive goods, calculated with reference to the emissions embedded in their production, so that domestic producers facing a carbon price are not undercut by imports from countries with weaker carbon pricing ("carbon leakage" prevention). The UK CBAM will commence on 1 January 2027, applying to imports in the aluminium, cement, fertiliser, hydrogen, and iron and steel sectors, covering CO2 across all sectors plus N2O for fertilisers and PFCs for aluminium. The EU's CBAM, by contrast, entered its transitional (reporting-only) phase on 1 October 2023 and moved into its definitive phase — with mandatory purchase and surrender of CBAM certificates — from 1 January 2026, covering cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen.
The UK's recognition of the CCTS operationalises the "carbon price relief" clause of its CBAM regulations for the first time for an Indian scheme — Indian exporters who can show they paid a carbon price under the CCTS can now have that price netted off against their UK CBAM liability from 2027.
India's Carbon Credit Trading Scheme (CCTS), 2023
The CCTS is India's first mandatory domestic carbon market, notified by the Ministry of Power on 28 June 2023 under Section 14AA of the Energy Conservation (Amendment) Act, 2022. It replaces the earlier Perform, Achieve and Trade (PAT) scheme and establishes the Indian Carbon Market (ICM). Energy-intensive obligated entities are assigned greenhouse-gas-intensity reduction targets; entities that outperform their target earn tradable Carbon Credit Certificates (CCCs), while entities that miss it must buy certificates or pay a penalty.
Key Details
- Statutory basis: Section 14AA, Energy Conservation (Amendment) Act, 2022 (amending the Energy Conservation Act, 2001)
- Administrator: the Bureau of Energy Efficiency (BEE), which sets methodologies, benchmarks, and Measurement, Reporting and Verification (MRV) protocols
- Regulator for trading: Central Electricity Regulatory Commission (CERC), for the market/trading mechanism
- Coverage as of 2026: close to 490 obligated entities across seven sectors carrying legally binding emission-intensity targets, notified jointly by BEE and the Ministry of Environment, Forest and Climate Change (MoEFCC)
- Replaces the PAT scheme, which since 2012 covered energy-efficiency (not carbon-intensity) targets for designated consumers
It is precisely because the CCTS carries a legally binding, verifiable domestic carbon price (via BEE-administered compliance obligations) that the UK could certify it as a "qualifying carbon pricing mechanism" eligible for CBAM carbon price relief.
Carbon Markets — Compliance vs Voluntary
Carbon markets are broadly split into compliance markets (created and enforced by regulation, where entities face legally binding caps or intensity targets — e.g., CCTS, EU ETS) and voluntary carbon markets (where credits are bought voluntarily for corporate ESG or net-zero commitments, unconnected to statutory obligation). The distinction matters for UPSC because CBAM-type carbon price relief generally recognises only compliance-market carbon prices, not voluntary offsets.
The UK's recognition applies specifically to India's compliance-based CCTS carbon price, distinguishing it from voluntary carbon credits, which would not qualify for CBAM relief under either the UK or EU frameworks.
- UK CBAM regulations under which CCTS was assessed: Carbon Border Adjustment Mechanism (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations, 2026, Part 3, Regulation 6
- UK CBAM commencement: 1 January 2027; registration threshold: £50,000 of CBAM goods per 12 months
- EU CBAM definitive phase (mandatory certificate purchase) began: 1 January 2026
- CCTS notified: 28 June 2023, under Section 14AA, Energy Conservation (Amendment) Act, 2022
- CCTS administrator: Bureau of Energy Efficiency; obligated entities: approximately 490 across seven sectors (2026)
- Sectors covered under UK CBAM: aluminium, cement, fertilisers, hydrogen, iron and steel