UK recognises India's carbon credit trading scheme under its carbon border tax
Can a carbon market at home cut the border tax that Indian steel and aluminium will pay in Britain?
Published 8 September 2026. Written by Pratidin from the reports linked at the end; every fact checked by a separate review before publishing. How we work
The United Kingdom has recognised India's Carbon Credit Trading Scheme (CCTS) as a carbon pricing scheme that qualifies for relief under the UK's Carbon Border Adjustment Mechanism (CBAM), The Hindu reported, quoting an official. According to the report, His Majesty's Treasury, the UK's finance ministry, has included the CCTS in the UK's indicative list of overseas carbon pricing schemes and has conveyed this to the Bureau of Energy Efficiency (BEE) under India's Ministry of Power. The UK CBAM comes into force on 1 January 2027. It will charge importers of aluminium, cement, fertiliser, hydrogen, and iron and steel for the greenhouse gases emitted in making those goods, and it allows a deduction for a qualifying carbon price already paid in the country where they were made.
A CBAM is a charge at the border meant to prevent 'carbon leakage', the shift of polluting production from countries with strict climate rules to countries with weaker ones. Domestic producers in the UK pay for their emissions under the UK Emissions Trading Scheme; the CBAM puts a comparable price on the emissions embedded in imports. Because the charge is reduced by any eligible carbon price paid abroad, recognition of the CCTS means that UK importers can claim relief for Indian goods whose emissions have already been priced under India's scheme. This could lower the cost for Indian exporters of steel and aluminium. How much relief they actually get will depend on the carbon price that Indian producers pay under the CCTS.
The CCTS was notified on 28 June 2023 under the Energy Conservation (Amendment) Act, 2022, which amended the Energy Conservation Act, 2001. It sets up an Indian Carbon Market with two tracks. Under the compliance track, energy-intensive industries such as aluminium, cement and iron and steel get targets for greenhouse gas emission intensity (emissions per unit of output). Units that beat their targets earn Carbon Credit Certificates, each equal to one tonne of carbon dioxide equivalent, and units that miss them must buy certificates. A voluntary offset track lets other projects earn credits. A National Steering Committee co-chaired by the Ministry of Power and the Ministry of Environment, Forest and Climate Change oversees the market, and BEE administers it. India has criticised carbon border taxes, especially the European Union's, as unilateral trade measures at odds with the principle of common but differentiated responsibilities. Supporters of the CCTS argue that a credible domestic carbon price is the best defence, since it keeps the money paid for emissions within India instead of sending it abroad as border charges.
Prelims facts
- The UK has recognised India's Carbon Credit Trading Scheme as an overseas carbon pricing scheme eligible for relief under the UK Carbon Border Adjustment Mechanism.
- The UK CBAM starts on 1 January 2027 and covers aluminium, cement, fertiliser, hydrogen, and iron and steel.
- India's CCTS was notified on 28 June 2023 under the Energy Conservation (Amendment) Act, 2022 and is administered by the Bureau of Energy Efficiency.
- One Carbon Credit Certificate under the CCTS equals one tonne of carbon dioxide equivalent.
- The EU's CBAM moved from a reporting-only transitional phase, begun on 1 October 2023, to its definitive phase on 1 January 2026.
Quick recall
- When does the UK's Carbon Border Adjustment Mechanism begin?
- 1 January 2027.
- Which sectors does the UK CBAM cover?
- Aluminium, cement, fertiliser, hydrogen, and iron and steel.
- Under which law was India's Carbon Credit Trading Scheme notified?
- The Energy Conservation (Amendment) Act, 2022, amending the Energy Conservation Act, 2001.
- When was the CCTS notified?
- 28 June 2023.
- What does one Carbon Credit Certificate represent?
- One tonne of carbon dioxide equivalent.
- Which body administers the CCTS?
- The Bureau of Energy Efficiency, under the Ministry of Power.
- What is carbon leakage?
- The shift of emissions-intensive production to countries with weaker climate rules.
- When did the EU CBAM's definitive phase begin?
- 1 January 2026, after a transitional reporting phase from 1 October 2023.
Prelims practice question
Which one of the following bodies administers India's Carbon Credit Trading Scheme, 2023?
- Central Pollution Control Board
- Securities and Exchange Board of India
- Bureau of Energy Efficiency
- NITI Aayog
Show answer
Answer: (c) Bureau of Energy Efficiency. The Bureau of Energy Efficiency, a statutory body under the Ministry of Power created by the Energy Conservation Act, 2001, administers the CCTS, with a National Steering Committee co-chaired by the Ministry of Power and the Ministry of Environment, Forest and Climate Change providing oversight. The CPCB enforces pollution laws, SEBI regulates securities markets and NITI Aayog is a policy think tank; none of them administers the scheme.
Use this in UPSC Mains: previous-year questions
Recurring theme: Carbon pricing, carbon markets and the trade impact of climate policy on India
- How to use this
Argue that carbon credits remain worth pursuing because India's domestic carbon market now also protects export competitiveness, not only supports energy-intensive growth.
- India's Carbon Credit Trading Scheme, notified on 28 June 2023 under the Energy Conservation (Amendment) Act, 2022, sets emission intensity targets for aluminium, cement and iron and steel units.
- Units beating targets earn Carbon Credit Certificates (one tonne of CO2 equivalent each); laggards must buy them, with BEE administering the market.
- The UK has recognised the CCTS for relief under its CBAM from 1 January 2027, so carbon prices paid in India can reduce border charges on Indian steel and aluminium.
- How to use this
Use carbon border taxes as a new trade barrier, and India's carbon market recognition as one way of meeting it.
- The UK CBAM, starting 1 January 2027, charges imports of aluminium, cement, fertiliser, hydrogen, and iron and steel for embedded emissions; the EU's CBAM became definitive on 1 January 2026.
- India has criticised carbon border taxes, especially the EU's, as unilateral trade measures at odds with common but differentiated responsibilities.
- UK recognition of India's CCTS lets importers claim relief for carbon priced in India; supporters argue a credible domestic carbon price keeps that money in India.
Mains practice question
What is a carbon border adjustment mechanism? Discuss how India's Carbon Credit Trading Scheme can help Indian exporters respond to carbon border taxes. (150 words)
Model answer
A carbon border adjustment mechanism (CBAM) charges imports for the carbon emitted in making them, so that foreign producers face a carbon cost similar to domestic ones. The UK's CBAM starts on 1 January 2027; the EU's became definitive on 1 January 2026.
How the CCTS helps
- Both CBAMs reduce the charge for a carbon price already paid abroad. The UK has now recognised India's Carbon Credit Trading Scheme (CCTS) for such relief.
- CCTS intensity targets push steel, aluminium and cement units to cut embedded emissions.
- Revenue from carbon pricing stays in India instead of being paid abroad as border charges.
Limits
- Relief depends on the carbon price actually paid, which may be low under an intensity-based market.
- Robust measurement, reporting and verification are needed to satisfy foreign regulators.
Way forward
- Seek EU recognition, strengthen price discovery and help small exporters with emissions data.
A credible domestic carbon market is India's best answer to carbon border taxes.
The basics
Why this matters
Climate policy is now trade policy. Britain and the EU charge importers for the carbon embedded in steel, aluminium, cement and fertiliser. India's answer is its own carbon market, the Carbon Credit Trading Scheme, 2023. The UK's decision to recognise it links the two worlds, and both Prelims and Mains can ask how.
Two ways to price carbon
A carbon tax fixes the price of emissions; an emissions trading scheme fixes a cap or target and lets the market set the price. India's scheme uses intensity targets, emissions per tonne of product, rather than an absolute cap.
- Government sets the price per tonne
- Emissions respond to the price
- Simple to administer
- Government sets a cap or intensity targets
- Market sets the price of credits
- India's CCTS and the UK and EU schemes use this route
What a border adjustment does
If only some countries price carbon, polluting production can move to countries that do not. This is carbon leakage. The Carbon Border Adjustment Mechanism closes the gap by charging imports for their embedded emissions, minus any carbon price already paid abroad.
- 1Measure embedded emissionsGreenhouse gases emitted in making the imported good
- 2Apply the UK carbon rateA rate linked to the carbon price UK producers pay
- 3Deduct carbon price paid abroadRelief for an eligible overseas scheme, such as India's CCTS
- 4Importer pays the balanceCharged from 1 January 2027 on aluminium, cement, fertiliser, hydrogen, iron and steel
India's carbon market
The CCTS came from the Energy Conservation (Amendment) Act, 2022. It has a compliance track for energy-intensive industries and a voluntary offset track. The Bureau of Energy Efficiency runs it day to day.
- 1National Steering CommitteeOversees the market; co-chaired by the Ministries of Power and Environment
- 2Bureau of Energy EfficiencyAdministers the scheme and proposes targets
- 3Obligated entitiesEnergy-intensive units that must meet emission intensity targets
- 4Offset projectsVoluntary projects that earn credits for verified reductions
- 5Carbon Credit CertificateTradable unit equal to one tonne of carbon dioxide equivalent
- 2001Energy Conservation Act enacted
- March 2002Bureau of Energy Efficiency set up
- 2022Energy Conservation (Amendment) Act allows a carbon credit trading scheme
- June 2023Carbon Credit Trading Scheme notified
- January 2026EU CBAM enters its definitive phase
- September 2026UK recognises India's CCTS for CBAM relief
- January 2027UK CBAM begins
India still objects to border carbon taxes in principle, citing Common but differentiated responsibilities, but a working domestic price reduces what its exporters pay.
Go deeper
In one line: The UK has accepted India's Carbon Credit Trading Scheme as a carbon price that can reduce the border charge on Indian goods under the UK's Carbon Border Adjustment Mechanism from 2027.
Why it matters for UPSC
Carbon border taxes sit where climate change, trade and India's industrial growth meet. Prelims can test the scheme, the law behind it and the sectors covered. Mains can ask whether such taxes are fair and how India should respond. UPSC asked about carbon credits in Mains 2014.
The core idea
The Carbon Border Adjustment Mechanism charges imports for the carbon emitted in making them, but gives credit for carbon prices paid abroad. India's Carbon Credit Trading Scheme, 2023 creates such a price at home. It is run by the Bureau of Energy Efficiency. India objects to border taxes as unfair under the principle of Common but differentiated responsibilities, yet it now benefits from having its own market recognised.
Numbers and dates to remember
- UK CBAM start: 1 January 2027
- UK CBAM sectors: aluminium, cement, fertiliser, hydrogen, iron and steel
- CCTS notified: 28 June 2023, under the Energy Conservation (Amendment) Act, 2022
- One Carbon Credit Certificate = one tonne of carbon dioxide equivalent
- BEE set up: 1 March 2002, under the Energy Conservation Act, 2001
- EU CBAM: transitional from 1 October 2023, definitive from 1 January 2026
Where to go next
- Carbon Border Adjustment Mechanism: how border carbon taxes work
- Carbon Credit Trading Scheme, 2023: India's own carbon market
- Bureau of Energy Efficiency: the body that runs it
- Common but differentiated responsibilities: the principle India invokes against border taxes
Go deeper: fair climate tool or green protectionism?
The case for border adjustments is about fairness to domestic producers and the integrity of climate policy. If UK or EU steelmakers pay for every tonne of carbon while importers do not, production and emissions may simply move abroad. The Carbon Border Adjustment Mechanism is designed to stop that and to nudge trading partners to price carbon themselves.
The case against, which India has made, is that such measures are unilateral. They impose one region's climate costs on developing countries that contributed far less to historical emissions, which cuts against Common but differentiated responsibilities in the UN climate regime. Critics also call them green protectionism: a trade barrier dressed as climate policy, falling hardest on exporters of steel and aluminium, and on small firms that struggle to measure and verify their emissions.
The UK decision shows a middle path. By recognising the Carbon Credit Trading Scheme, 2023, Britain accepts that a carbon price paid in India counts. That rewards India for building its own market, which the Bureau of Energy Efficiency has run since 2023, and keeps revenue at home. But the relief is only as large as the price actually paid. India's market is based on emission intensity targets rather than an absolute cap, and prices discovered in such markets may be modest. Foreign regulators will also want credible measurement, reporting and verification.
For Mains, a balanced answer holds both ideas: India should keep contesting unilateral border taxes at the WTO and in climate talks, while strengthening its domestic carbon market so that its exporters pay less abroad. The India-UK Comprehensive Economic and Trade Agreement, signed in July 2025, shows that trade access and climate rules are now negotiated side by side.
Carbon Border Adjustment Mechanism
How border carbon taxes work
In one line: A Carbon Border Adjustment Mechanism (CBAM) charges imports for the carbon emitted in producing them, so that they face a carbon cost similar to domestic goods.
The logic
Countries that price carbon worry about carbon leakage, the movement of polluting production to places without such prices. A CBAM levies a charge on the embedded emissions of imports, and usually allows a deduction for a carbon price already paid in the exporting country.
The two big schemes
The EU's CBAM ran a reporting-only transitional phase from 1 October 2023 and entered its definitive phase on 1 January 2026. It covers cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. The UK's CBAM starts on 1 January 2027 and covers aluminium, cement, fertiliser, hydrogen, and iron and steel.
Why it is in the news
The UK has recognised India's carbon market as an overseas scheme eligible for CBAM relief.
Where to go next
Carbon Border Adjustment Mechanism: every story that connects to it (4)
Carbon Credit Trading Scheme, 2023
India's own carbon market
In one line: The Carbon Credit Trading Scheme (CCTS) is India's framework for a domestic carbon market, notified on 28 June 2023.
Legal basis
The Energy Conservation (Amendment) Act, 2022 empowered the Centre to specify a carbon credit trading scheme. The CCTS followed in 2023 and set up the Indian Carbon Market.
How it works
Under the compliance mechanism, energy-intensive sectors such as aluminium, cement and iron and steel get greenhouse gas emission intensity targets. Units that do better than their target earn Carbon Credit Certificates, each worth one tonne of carbon dioxide equivalent; units that fall short must buy them. A voluntary offset mechanism allows other projects to earn credits for verified reductions. A National Steering Committee co-chaired by the Ministries of Power and Environment oversees the market.
Why it is in the news
The UK has accepted the CCTS as a carbon pricing scheme for relief under its CBAM.
Where to go next
Bureau of Energy Efficiency
The body that runs India's carbon market
In one line: The Bureau of Energy Efficiency (BEE) is a statutory body under the Ministry of Power that leads India's energy efficiency policy and administers the carbon market.
Origin
BEE was set up on 1 March 2002 under the Energy Conservation Act, 2001. Its job is to reduce the energy intensity of the economy.
Known programmes
BEE runs the Standards and Labelling programme (the star ratings on appliances), the Perform, Achieve and Trade scheme for energy-intensive industries, and energy conservation building codes. The Perform, Achieve and Trade scheme, with its tradable energy saving certificates, was a forerunner of the carbon market.
Why it is in the news
The UK's recognition of the CCTS was conveyed to BEE, which administers the scheme.
Where to go next
Bureau of Energy Efficiency: every story that connects to it (2)
Common but differentiated responsibilities
The principle India invokes against border taxes
In one line: Common but differentiated responsibilities (CBDR) means that all countries must act on climate change, but not in the same way or to the same extent.
Origin
The principle is written into the UN Framework Convention on Climate Change, adopted at the Rio Earth Summit in 1992. It recognises that developed countries caused most historical emissions and have more resources, so they should lead. The Paris Agreement of 2015 restates it with the phrase 'in the light of different national circumstances'.
Why it matters for CBAM
India argues that border carbon taxes impose the climate costs of rich economies on developing ones, ignoring differentiated responsibility. Supporters of CBAMs reply that they apply equally to all importers and give credit for carbon prices paid abroad.
Where to go next
Common but differentiated responsibilities: every story that connects to it (3)
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