India’s CCTS Recognised Under UK CBAM: Impact on Indian Exporters

With the finalization of the India – UK FTA last year, there was cause for celebration on both sides of the deal. India had successfully managed to protect sensitive sectors while ensuring 99% of its tariff lines to the UK enter the market duty free along with opening of 137 service sub sectors for Indian suppliers, marking a crucial inflection point for the sub-continent’s largest export segment. While the FTA hopes to boost bilateral trade, it conspicuously omitted mentioning a crucial aspect of trade in the modern world – Carbon.

India–UK FTA and the Carbon Question

With domestic legislations, continental policies and even multilateral global frameworks like the Paris Accords heavily seeking to punish emitters who fail to decarbonize, a major bilateral trade agreement between two of the world’s major economies, particularly one which is extremely resource rich in extractive industries was bound to be looked at through the lens of sustainability, decarbonization and how it would balance the benefits of the FTA with proposed domestic UK legislation on the Carbon Border Adjustment Mechanism, the isles equivalent to the EU’s CBAM.

During the FTA negotiations, when the question of a carbon levy through the UK CBAM was broached, negotiators on behalf of the UK had consistently maintained their stance that it was proposed legislation and therefore could not be included under the FTA. However, with the trade agreement coming into force in July 2026 and the CBAM being implemented from January 2027, carbon levies were a major bone of contention between both sides. While the CBAM by itself accounted for an adjustable pricing mechanism wherein domestic carbon levies in the country of origination of such high emission goods are priced in when calculating the total carbon tax paid by the importer, there was no clarity on whether that would be considered for India’s own domestic carbon tax mechanism – the Carbon Credit Trading Scheme or CCTS.

The CCTS was formulated to price in greenhouse gas emissions and incentivize polluting industries to meet their emissions targets. Noncompliance with specific emissions targets was subject to penalties while compliance with targets would earn the entity Carbon Credit Certificates which could be sold in an open exchange for profit. Crucially, CCTS was not recognized until recently by the UK, with questions on how an adjustable pricing mechanism would work under the FTA. With the 1^st January 2027 implementation date for the UK CBAM approaching, for an Indian exporter and a British importer, January was shaping up to be a month of contradictory realities. While on one hand the FTA promised improved market access, competitive pricing and a more level footing after years of negotiations the CBAM was positioned on the other end of the spectrum, threatening to claw back a significant portion of the benefit afforded to iron, steel & aluminum along with cement, goods that Indian heavy industry exports the most to the UK.

India’s CCTS Gets Recognition Under UK CBAM

The answer that India has been negotiating and pressing for – the acceptance of its own CCTS as an equivalent to the CBAM when factoring in duty exemptions for carbon intensive goods finally moved ahead. On the 8^th of September, HM Treasury confirmed that India’s domestic trading scheme qualifies under the UK CBAM. While a welcome move, it is not a blanket exception but a more durable acceptance that India’s domestic legislation was assessed as a political and policy legal equivalent on its own terms rather than as a political carve out. The confirmation, communicated by the HM Treasury to the Bureau of Energy Efficiency places CCTS in Part 3, Regulation 6 of the UK CBAM, the legal framework stipulating how foreign decarbonization schemes work in conjunction with domestic legislation. In pure practical terms, it now means that UK Importers of eligible Indian goods would now be able to claim Carbon Price Relief corresponding to the amount already paid by the manufacturer under the CCTS without having to pay a subsequent levy by the UK on import. The double taxation problem which had no answer in the text of the FTA now has a mechanism under which EXIM can be assessed. This means that a projected 775 million pounds additional cost to be borne by importers of steel, aluminium and cement can be drastically reduced, making goods from India competitive under the FTA along with providing them a structural first mover recognition advantage in comparison to competitors.

What Does This Mean for Indian Exporters?

There is a crucial caveat present here though. The relief under this mechanism cannot be obtained simply by being recognized by the CCTS and its overseeing Department. For an Indian exporter to benefit, the carbon price borne on their specific goods under the CCTS must be documented, quantified and verified to a standard that satisfies HMRC. This means installation-level emissions data, third-party verification, and a demonstrable link between the carbon cost paid domestically and the goods being exported to the UK. For larger and well capitalised sectors, installation level carbon data capturing would not be an issue, however, for smaller or midsized exporters, the relief would exist on paper but may prove difficult to access without significant preparation.

Looking Beyond the UK

The timing of this relief from the UK is also important – the EU is under the final stages of its own Economic Agreement with India and has already implemented its own CBAM from January 2026. The acceptance of India’s domestic carbon levy in the UK’s framework provides a compelling argument as to why Brussels cannot do the same given that while the mechanism to pay is different, the underlying structure is identical. Significant preparations on India’s side to make its smaller and midsized firms eligible for CCTS & CBAM verification therefore augur well not just for relief under the UK India FTA but also the one with the EU, both large markets for India’s carbon intensive heavy manufacturing sectors.

For Indian exporters and British importers, January 2027 looks materially different than what it did last week. The carbon question has been answered and projected relief in monetary terms announced – but the larger question of preparing smaller Indian firms to actually gain from the relief remains and is one that will determine how much of this recognition actually goes on and benefits both sides of the agreement.