UK’s carbon tax may impact $775 mn worth of Indian goods

The UK on Monday decided to implement its carbon border adjustment mechanism (CBAM) from 2027, a move that could subject $775 million of Indian exports or 6.8% of the exports to the country to 14-24% tax, experts said. The implementation of CBAM will undergo a consultation phase in 2024, where the government will finalize the details, including the precise list of products to be covered.

The UK, after the EU, will be the second economy to implement CBAM. It calls the mechanism as the import carbon pricing mechanism. The CBAM will initially focus on sectors like iron, steel, aluminum, fertilizer, hydrogen, ceramics, glass, and cement.

“The tax will be calculated based on the estimated carbon emissions involved in the production of these imported goods. Countries with carbon pricing schemes equivalent to the UK’s will be exempt from this tax,” said Ajay Srivastava, co-founder, Global Trade Research Initiative (GTRI).


For the EU, the tax range is 20-35%. Both the UK and the EU have implemented emissions trading systems (ETS) to cap and reduce greenhouse gas emissions. These systems work by setting a limit on the total amount of carbon dioxide emissions allowed and then issuing permits to emitters. Companies must purchase permits for each ton of carbon dioxide they emit, and the price of these permits is determined by supply and demand.

The main aim of UK CBAM is to ensure that imports are subject to the same rate of carbon tax as the UK producers pay through UK’s ETS.

Srivastava said that the UK CBAM will lead to an increase in prices in UK due to the higher costs of imported goods. However, expensive imports may help local production and investment in low-carbon technologies.

While the UK CBAM follows the EU model, the UK is also considering implementing voluntary product standards and developing a framework to measure the carbon content of goods. These initiatives are aimed at promoting low-carbon products and supporting other decarbonization policies.