EU To Integrate India's Carbon Credit Scheme Into CBAM Framework

The European Union will integrate India’s Carbon Credit Trading Scheme into its Carbon Border Adjustment Mechanism (CBAM), in a move that could ease compliance costs for Indian exporters of carbon-intensive goods such as steel, cement, fertilisers and aluminium.

According to the new EU-India Strategic Agenda announced on Wednesday, the EU said any carbon price effectively paid in India under its domestic carbon market will be deducted from the financial adjustment charged under CBAM.

This is expected to favour Indian exporters investing in decarbonisation, while also addressing long-standing concerns of double taxation. Brussels has also said CBAM procedures will be simplified to benefit small businesses.

India's Commerce Minister Piyush Goyal has gone on record to say that CBAM is a trade barrier under the guise of environmental regulation, apart from calling for a transition period before fully adopting these measures. In July, Goyal had said "if anyone hurts out exports interest, we will retaliate and hurt theirs...no unilateral measures which hurt India will go away without a proportionate response."

The carbon tax is a levy that the UK will impose on carbon emissions at the production stage. This is set to affect sectors like iron, steel, aluminium, and other carbon-intensive products.

India and the EU also aim to conclude a long-pending Free Trade Agreement (FTA) by the end of 2025. The EU is also seeking an Investment Protection Agreement, a pact on Geographical Indications, and a Comprehensive Air Transport Agreement that would increase direct flights, lower airfares, and strengthen tourism and trade links.

In addition, the EU pledged to expand investments in India through its Global Gateway initiative, which offers guarantees and blended finance to de-risk private capital. The EU-India Trade and Technology Council will also intensify discussions on issues such as screening of foreign investments and technology cooperation.