India’s carbon cash bid as Europe adds a trade cost

India's government is proposing a new approach to combat carbon emissions from overseas trade. As of January 2026, the European Union has implemented the Carbon Border Adjustment Mechanism (CBAM), which will impose a carbon cost on selected carbon-intensive products imported into the EU. This mechanism requires EU importers to pay for emissions associated with those products, based on their production carbon footprint.

The EU's CBAM will impact India significantly, as India is a major exporter of carbon-intensive goods like steel, aluminium, cement, and fertiliser. The CBAM will add an additional cost to these products when they are sold in European markets, potentially reducing their competitiveness and profitability. India is therefore working on creating its own domestic carbon market to generate revenue from its carbon pricing efforts.

India is developing a Carbon Credit Trading Scheme (CCTS) and is working to align its carbon verification protocols with the EU's requirements. Additionally, the UK has agreed to recognize India's CCTS, which will allow qualifying carbon payments to be considered under the UK's CBAM. However, even with this recognition, India's carbon price is likely to remain lower than the prices in Europe or China, meaning Indian exporters may still face substantial carbon charges from EU and UK markets.

The central challenge for India is striking a balance between generating domestic carbon revenue and reducing the carbon cost of its exports. While a domestic carbon price can help fund cleaner technologies and infrastructure, rapid decarbonisation remains crucial to alleviating the carbon burden associated with carbon-intensive industries.