UK FTA: India Has Right To Retaliate If Carbon Tax Hurts Industry, Say Sources

If the United Kingdom's proposed Carbon Border Adjustment Mechanism adversely impacts Indian trade, the UK agreed on Friday that India will have the freedom to implement counterbalancing measures, as per sources to NDTV Profit.

The UK's proposed carbon tax is still at a preparatory stage and could potentially come into effect from January 1, 2027. India has also raised the matter of CBAM during the trade pact negotiations. Since the CBAM is not yet in existence, it is not a part of the FTA, but mechanisms will be established to address and work around its possible impacts.

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 mechanism.

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 has consistently criticised the CBAM as a trade barrier under the guise of environmental regulation, calling for a transition period before fully adopting these measures.

Commerce Minister Piyush Goyal has publicly affirmed India's right to retaliate should the European Union or United Kingdom impose a carbon tax on Indian exports, warning that such moves could ultimately contribute to the economic decline of Europe.

In parallel, Indian policymakers are examining domestic strategies to mitigate the impact of foreign carbon taxes. These include proposals for local green certification of products and the introduction of indigenous taxes to support sustainability initiatives. Officials have indicated that India stands prepared to implement measures to offset any adverse effects on its exporters if the need arises.