U.K. recognises India’s carbon credit scheme under its carbon tax mechanism: official

In a major breakthrough, the U.K. has recognised India’s Carbon Credit Trading Scheme as a qualifying criterion for pricing relief under its carbon border adjustment mechanism (CBAM), a move that would reduce the tax burden on domestic exporters, an official said on Monday (September 7, 2026).

In a communication addressed to the Bureau of Energy Efficiency, Ministry of Power, the U.K.’s HM Treasury confirmed that the CCTS has been included in the U.K.’s published indicative list of overseas carbon pricing schemes assessed as qualifying criteria under a provision of the Carbon Border Adjustment Mechanism (Calculation of CBAM Rate and Determination of Carbon Price Relief) Regulations 2026, the official said.

The move is important as the Commerce Ministry was pursuing the matter with the U.K. for long.

The Carbon Credit Trading Scheme (CCTS) has been notified by India with the objective of reducing, removing, or avoiding greenhouse gas emissions from the Indian economy by pricing such emissions through the trading of Carbon Credit Certificates.

The financial support for implementation of the CCTS would be met by the Bureau of Energy Efficiency from fees and charges collected from entities under the scheme and its own resources.

The official said the U.K. government had included the scheme in its indicative list as a qualifying carbon pricing mechanism under Britain’s CBAM.

With this recognition, U.K. importers of eligible Indian goods covered under CBAM will be able to seek carbon price relief corresponding to the effective carbon price borne by those goods under the CCTS, subject to satisfying the evidence and verification requirements prescribed under U.K. law.

“This will reduce the effective CBAM liability on Indian goods, directly benefiting Indian exporters to the U.K.,” the official said.

The recognition follows sustained technical-level engagement between the two governments on the design and implementation of the CCTS.

The recognition reflects the U.K. CBAM’s core principle of avoiding double taxation on goods that have already borne an eligible carbon price in their country of origin.

Going forward, cooperation on carbon market design and implementation will continue through the U.K.-India Energy Memorandum of Understanding and the Partnership for Market Implementation.

The two governments are also committed to continued dialogue on carbon pricing, including on the interaction between the CCTS and U.K. CBAM rules, further strengthening India-U.K. engagement.

However, the amount of relief that can be claimed will depend on the effective carbon price to which the goods in question have been subject.

A liable person for U.K. CBAM will still be required to satisfy the applicable evidence and verification requirements.

India and the U.K. have implemented a comprehensive economic and trade partnership on July 15.

Merchandise trade between the two countries stood at $25.1 billion in 2025-26, while bilateral services trade reached $35.4 billion in 2024.