UK recognises India’s carbon credit scheme for carbon tax relief
The United Kingdom has added India's Carbon Credit Trading Scheme (CCTS) to its list of qualifying carbon pricing mechanisms recognised under the UK's Carbon Border Adjustment Mechanism (CBAM).
The recognition followed sustained technical-level engagement between the Ministry of Commerce and Industry and the corresponding UK authorities on the design, monitoring and verification architecture of the CCTS.
Under this arrangement, UK importers of eligible Indian goods covered by CBAM can claim carbon price relief corresponding to the effective carbon price already borne by those goods under the CCTS, subject to evidence and verification requirements under UK law.
The move is intended to prevent "double carbon taxation" — Indian exporters paying a carbon cost domestically and then again at the UK border — thereby protecting the competitiveness of carbon-intensive Indian exports such as steel, aluminium, and cement ahead of the UK CBAM's commencement.
Carbon Border Adjustment Mechanism (CBAM)
A CBAM is a border tax/levy imposed by an importing country on the embedded carbon emissions of certain imported goods (typically carbon-intensive sectors like steel, cement, aluminium, fertilisers), designed to prevent "carbon leakage" — where domestic producers facing a carbon price relocate production, or lose market share, to countries without one.
The UK's recognition of the CCTS is a direct application of this "carbon price offset" principle: it operationalises how a UK CBAM levy on Indian steel/aluminium exports would be reduced by whatever carbon cost Indian producers already incur domestically under the CCTS.
Carbon Credit Trading Scheme (CCTS), India
The CCTS is India's domestic compliance carbon market, established as the legal and institutional mechanism for a national carbon credit trading system, distinct from earlier voluntary/PAT-linked energy-saving certificate schemes.
Key Details
- Legal basis: the Energy Conservation (Amendment) Act, 2022, which amended the Energy Conservation Act, 2001, to empower the central government to specify a carbon credit trading scheme.
- The CCTS itself was notified in 2023; it is administered by the Bureau of Energy Efficiency (BEE) as the scheme administrator, under the joint oversight of the Ministry of Power and the Ministry of Environment, Forest and Climate Change (MoEFCC).
- It initially covers energy-intensive "obligated entities" across sectors such as steel, cement, aluminium, chlor-alkali, and others, assigning them Greenhouse Gas Emission Intensity (GEI) targets, with compliance-linked Carbon Credit Certificates (CCCs) tradeable on power exchanges.
It is precisely because the CCTS creates a verifiable, government-administered carbon price on Indian industry that a foreign CBAM authority (UK) can recognise it as an "equivalent" mechanism eligible for carbon price relief — the same recognition India is separately seeking from the EU for its CBAM.
Carbon Leakage and Trade-Climate Linkages
"Carbon leakage" is the economic phenomenon where climate regulation in one jurisdiction shifts production (and associated emissions) to jurisdictions with laxer climate rules, undermining the net global environmental benefit of the regulation. CBAMs are the primary policy tool developed by the EU and UK to counter this.
Key Details
- India has raised concerns at the WTO and in bilateral trade negotiations that unilateral CBAMs function as a disguised trade barrier inconsistent with the principle of "common but differentiated responsibilities" (CBDR) under the UNFCCC.
- The India-UK Comprehensive Economic and Trade Agreement (CETA) negotiations and technical dialogue on carbon pricing recognition are separate but related tracks of engagement between the two governments.
This recognition is a narrow, technical carve-out (mutual recognition of carbon pricing) rather than a broader CBAM exemption — India continues to seek carve-outs for exports from developing countries in these multilateral and bilateral discussions.
- EU CBAM: reporting-only transition phase October 2023 to end-2025; definitive financial phase from 1 January 2026.
- UK CBAM: scheduled to take effect from 1 January 2027.
- CCTS legal basis: Energy Conservation (Amendment) Act, 2022; scheme notified 2023; administered by the Bureau of Energy Efficiency (BEE).
- Nodal ministries for CCTS: Ministry of Power and Ministry of Environment, Forest and Climate Change (MoEFCC).
- CCTS mechanism: Greenhouse Gas Emission Intensity (GEI) targets for obligated entities; tradeable Carbon Credit Certificates (CCCs).