UK Recognises India's Carbon Credit Scheme Under Its Carbon Tax Mechanism: Official

In a major breakthrough, the UK has recognised India's Carbon Credit Trading Scheme as a qualifying criterion for pricing relief under its carbon border adjustment mechanism (CBAM), a move that would reduce the tax burden on domestic exporters, an official said on Monday.

In a communication addressed to the Bureau of Energy Efficiency, Ministry of Power, the UK's HM Treasury confirmed that the CCTS has been included in the UK's published indicative list of overseas carbon pricing schemes assessed as qualifying criteria under a provision of the Carbon Border Adjustment Mechanism (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations 2026, the official said.

The Carbon Credit Trading Scheme (CCTS) has been notified by India with the objective of reducing, removing, or avoiding greenhouse gas emissions from the Indian economy by pricing such emissions through the trading of Carbon Credit Certificates.

The financial support for implementation of the CCTS would be met by the Bureau of Energy Efficiency from fees and charges collected from entities under the scheme and its own resources.

The official said that the UK government has included the scheme in its indicative list as a qualifying carbon pricing mechanism under Britain's CBAM.

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 borne by those goods under the CCTS, subject to satisfying the evidence and verification requirements prescribed under UK law.

"This will reduce the effective CBAM liability on Indian goods, directly benefiting Indian exporters to the UK," the official said.

The recognition follows sustained technical-level engagement between the two governments on the design and implementation of the CCTS.

The recognition 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 two governments are also committed to continued dialogue on carbon pricing, including on the interaction between the CCTS and UK CBAM rules, further strengthening India-UK engagement.

The move is important as the commerce ministry was pursuing the matter with the UK for long.

However, the amount of relief that can be claimed will depend on the effective carbon price to which the goods in question have been subject.

A liable person for UK CBAM will still be required to satisfy the applicable evidence and verification requirements.

THE MATTER -------------- The UK government in December 2023 decided to implement its Carbon Border Adjustment Mechanism (CBAM), or carbon tax, starting in 2027.

Under this mechanism, importers of certain carbon-intensive products such as iron and steel have to pay a charge in the UK based on the carbon emissions linked to those goods.

According to experts, certain India's exports to the UK may be impacted due to Britain's decision to introduce a carbon tax on products like iron and steel, aluminium, fertiliser, hydrogen, ceramic, glass and cement, from 2027.

India has notified CCTS, under which domestic firms can face a carbon-related cost. The UK has recognised this scheme.

Recognition could help avoid charging carbon tax on the same product twice. This means that if the carbon price paid in India qualifies, the UK can give relief for that amount when calculating the UK CBAM liability.