United Kingdom Recognises India's Carbon Credit Trading Scheme for Price Relief Under Its Carbon Border Adjustment Mechanism

Key facts

• The United Kingdom has recognised India's Carbon Credit Trading Scheme (CCTS) as a qualifying criterion for pricing relief under its carbon border adjustment mechanism (CBAM), a move expected to reduce the tax burden on Indian exporters.
• The UK's HM Treasury confirmed the recognition in a communication addressed to the Bureau of Energy Efficiency, Ministry of Power.
• 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.
• India notified the Carbon Credit Trading Scheme (CCTS) with the objective of reducing, removing, or avoiding greenhouse gas emissions by pricing such emissions through the trading of Carbon Credit Certificates.
• With the recognition, UK importers of eligible Indian goods covered under CBAM can seek carbon price relief corresponding to the effective carbon price borne under CCTS, subject to satisfying evidence and verification requirements prescribed under UK law.
• The recognition will reduce the effective CBAM liability on Indian goods, directly benefiting Indian exporters to the UK.
• The recognition follows sustained technical-level engagement between the two governments on the design and implementation of the CCTS.
• The move reflects 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.
• Going forward, cooperation on carbon market design and implementation will continue through the UK-India Energy Memorandum of Understanding and the Partnership for Market Implementation.
• The UK government decided in December 2023 to implement its Carbon Border Adjustment Mechanism, or carbon tax, starting in 2027, under which importers of carbon-intensive products such as iron and steel pay a charge in the UK based on the carbon emissions linked to those goods.
• Experts anticipate that certain Indian exports to the UK, including iron and steel, aluminium, fertiliser, hydrogen, ceramic, glass and cement, may be impacted by Britain's carbon tax from 2027.
• India and the United Kingdom implemented a comprehensive economic and trade partnership on July 15.
• Merchandise trade between India and the UK stood at $25.1 billion in 2025-26, while bilateral services trade reached $35.4 billion in 2024.
• Financial support for the implementation of the CCTS will be met by the Bureau of Energy Efficiency from fees and charges collected from entities under the scheme and its own resources.
• The amount of relief that can be claimed will depend on the effective carbon price to which the goods in question have been subject.