India asks European Union to recognise its carbon credit trading scheme

India has asked the European Union to recognise its Carbon Credit Trading Scheme (CCTS) amid concerns that its iron, steel and aluminium exports to the bloc will face extra scrutiny under the EU's Carbon Border Adjustment Mechanism (CBAM) that is due to kick in from October.

The issue is likely to be discussed at a key meeting on CBAM among top officials of various ministries including finance, commerce and industry, steel and MSME, and industry representatives on Tuesday, officials privy to the development said.

Under the proposed EU tax drill, non-EU steel producers must report direct and indirect emissions. The mechanism will translate into a 20-35% tax on select imports into the EU from January 1, 2026. From that date, EU importers will have to declare and purchase CBAM certificates to cover the emissions associated with producing imported steel products.


"We are talking to the EU to recognise our certificates. Discussions are on," an official told ET.

The government issues Carbon Credit Certificates - each representing reduction or removal of one tonne of carbon dioxide equivalent - to registered entities based on their initiatives to reduce carbon footprint.

CCTS aims to set up a framework for Indian carbon market. The scheme is yet to be given a final shape.

"Our scheme is being prepared," the official said. "We will have to discuss issues related to equivalence and pricing of carbon, and the processes to recognise these systems."

Experts said Indian firms should be ready to pay Carbon Border Tax under CBAM

"Tax will depend on direct and indirect emissions embedded in a product - the higher the emissions higher the tax," said Ajay Srivastava, cofounder of economic think tank GTRI.

New Delhi has already told the World Trade Organisation (WTO) that carbon border measures are being selectively applied to "trade-exposed industries" such as steel, aluminium, chemicals, plastics, polymers, chemicals and fertilisers. This reflects the underlying competitiveness concerns driving such measures.

The US has also approved an Inflation Reduction Act to establish green technology industries.

"The EU and the US are bringing these at the multilateral fora. We have said that environment and labour are non-trade issues and should not be discussed in WTO," the official cited above said. Bilateral talks are also on with the EU and US, the person added.

As per another official, India has been exploring various options to counter CBAM including ways in which retaliation could be done, or by raising the issue at the WTO, or extending support to the MSMEs.