In a relief to exporters, the UK has agreed to deduct the carbon price paid by them in India from their liability under its Carbon Border Adjustment Mechanism (CBAM) which comes into force January 2027.

The UK has informed India that its carbon credit trading scheme (CCTS) is as per the provisions of its law on CBAM so it is allowed this deduction, sources said. The UK move comes as a relief as it was feared that CBAM will reverse the tariff gains to key sectors of exports from India to the UK under the Comprehensive Economic and Trade Agreement (CETA) that became operational on July 15. The relief is similar to what the European Union had extended to India last year.

Under the UK law, an importer can claim carbon price relief to reduce the amount of CBAM charged on emissions if a good has been manufactured or processed by an installation participating in a qualifying carbon pricing scheme. The UK has included India’s CCTS in its indicative list as a qualifying carbon pricing mechanism.

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The recognition follows sustained technical-level engagement between the two governments on the design and implementation of CCTS, sources added. The recognition reflects the UK CBAM’s core principle of avoiding double taxation on goods that have already borne an eligible carbon price in their country of origin.

Even if the foreign carbon price calculation produces a larger amount, the maximum relief is capped at the UK CBAM liability on goods.

The UK’s CBAM is coming into force from January 2027. While the EU began transitional emissions reporting in late 2023 and full financial obligations in 2026, the UK will start collecting tax from Day 1. It operates as a direct tax collected, rather than requiring importers to purchase and surrender tradeable certificates like the EU system. Apart from iron and steel and aluminium, it covered cement, fertilizer and hydrogen.

Just before the CETA came into force, India and the UK had also sorted out the differences on steel import quota under the UK’s new safeguard scheme.

India’s exports of iron and steel and their products to the UK stood at $893.4 million in 2025-26, which accounts for a significant portion of $13.4 billion of total merchandise exports to the UK. The aluminium exports were modest at $94 million in the previous fiscal.