India, UK engaged in discussions on carbon tax issue: Commerce Secretary

New Delhi: India and the United Kingdom are engaged in discussions on Britain's carbon tax regulation, Commerce Secretary Rajesh Agarwal said on Tuesday.

In December 2023, the UK government announced that it would implement its Carbon Border Adjustment Mechanism (CBAM) starting in 2027.

According to economic think tank GTRI, India's exports worth USD 775 million to the UK may be impacted due to Britain's decision to introduce a carbon tax on products, like iron and steel, aluminium, fertiliser and cement, from 2027.


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"CBAM is a regulation which is under work. It has yet not come to fruition. Both sides are engaged in discussing CBAM regulation," Agarwal told reporters here.

The UK, after the European Union (EU), will be the second economy to implement CBAM. It calls the move the import carbon pricing mechanism, and it will initially focus on sectors like iron, steel, aluminium, fertiliser, hydrogen, ceramics, glass, and cement.

This tax could range from 14-24 per cent of the import value on full phase-out of free allowances under the ETS (Emission Trading System).

India's exports of iron and steel and their products to the UK stood at USD 893.4 million in 2025-26, accounting for a significant share of USD 13.4 billion in total merchandise exports to the UK.

The CBAM issue was on the table during the negotiations of a free trade agreement between India and the UK, which will come into force on July 15.

The implementation of the pact was delayed due to the UK's steel safeguard measures. After its resolution, both sides announced that they would implement the deal.

"We have been able to preserve the market access (for the domestic steel sector) in terms of value that we have enjoyed till now," Agarwal said, adding that "our quotas in the steel sector are comparatively higher compared to other trading partners of the UK)".

Announced in March, the UK's steel safeguard measures apply to all countries. The norm cuts duty-free steel import quotas by 60 per cent from July 1, with imports above the prescribed limits subject to a 50 per cent tariff from 25 per cent at present.

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The step was announced to protect their domestic firms from global overcapacity.

About 85 per cent of India's steel exports to the UK were already exempted from Britain's steel safeguard rules, while market access for the remaining shipments has been secured through a mix of measures such as country-specific and residual quotas under the bilateral trade pact.

Overall, 188 items accounting for USD 137 million worth of steel exports from India to Britain were covered by these safeguard measures, but these products will now also gain access under the trade pact.

Apart from country-specific quotas, exporters can also access residual quotas, which are generally allocated on a first-come, first-served basis and are open to competition among supplying countries.