Keeping India’s carbon money at home, Pg6

Key Highlights:

• The EU's Carbon Border Adjustment Mechanism (CBAM), effective since January 1, 2026, imposes carbon pricing on imports.
• The India-EU Free Trade Agreement (FTA), concluded on January 27, 2026, does not exempt India from CBAM.
• India's Carbon Credit Trading Scheme (CCTS), notified in 2023, establishes a domestic carbon price.
• India is considering an India Border Adjustment Mechanism (IBAM) to retain carbon revenues domestically.

Detailed Insights:

• CBAM impacts Indian exporters by imposing carbon charges without equivalent state support, unlike European producers who receive decarbonisation subsidies.
• The FTA's Annex 14-A establishes a technical dialogue on CBAM implementation, potentially allowing recognition of India's carbon price at the EU border.
• Climate justice is a key concern, as CBAM shifts the decarbonisation burden to developing countries while retaining revenue in Europe.
• CCTS allows European importers to deduct emissions that have already borne a carbon price in India, providing a legal basis for offsetting CBAM.
• IBAM would impose a carbon-based charge on CBAM-covered exports, collected in India, with revenues used for domestic green projects.
• Implementing IBAM carefully, through Annex 14-A, can ensure its recognition as a carbon price paid in the country of origin under CBAM Article 9.
• IBAM revenues should be ring-fenced in a dedicated fund for verifiable green projects, subject to strict standards and independent audits.

Key Concepts Involved:

• Carbon Border Adjustment Mechanism (CBAM): A carbon tariff on imports based on the carbon intensity of their production.
• Carbon Credit Trading Scheme (CCTS): A domestic scheme establishing a carbon price through tradable certificates.
• India Border Adjustment Mechanism (IBAM): A proposed carbon-based charge on exports to retain carbon revenues in India.

CBAM