India-UK FTA Deal: CBAM Omitted, Talks On Proposed Carbon Tax Ongoing

While the Comprehensive Economic and Trade Agreement has been signed between India and the United Kingdom, the text of the deal does not explicitly mention whether India has managed to secure an exemption from the UK's proposed Carbon Border Adjustment Mechanism.

The so-called carbon tax, which is set for introduction on January 1, 2027, 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.

"If India secures an exemption from the UK’s Carbon Border Adjustment Mechanism under the FTA, it could significantly boost exports from affected sectors," an official said, indicating that the two sides were still engaged on the issue.

India has been vocal on the CBAM being a trade barrier disguised as an environmental concern and has asked for a transition period before fully following these rules. Commerce Minister Piyush Goyal has said on record that India reserves the right to retaliate if the EU or UK implements a carbon tax against India and added that he can "see the decline of Europe if they implement things like CBAM."

India has also been exploring domestic alternatives to foreign carbon taxes, such as green-certifying products within India and imposing a local tax to fund sustainability efforts, sources said. If needed, India can take steps to offset the impact of such measures on its exporters, they added.

Meanwhile, the Bilateral Investment Treaty between India and the UK remains under negotiation. The BIT makes up the tripartite trade deal, which comprises the FTA and the social security agreement.