New Delhi, May 7, 2025 — While the recently concluded India-UK Free Trade Agreement (FTA) does not contain provisions to counter Britain’s proposed carbon tax, India has reserved the right to retaliate or rebalance concessions if domestic exports are adversely impacted in the future.
As per agency report, the UK government announced in December 2023 its intention to implement the Carbon Border Adjustment Mechanism (CBAM) from 2027, aimed at placing a carbon price on imported goods in sectors such as steel, aluminum, fertilizers, and cement. The Global Trade Research Initiative (GTRI) estimates that the implementation of this carbon levy could affect Indian exports worth approximately USD 775 million to the UK.
Officials have clarified that the India-UK FTA does not presently include any safeguard mechanism against CBAM. However, given the current lack of specific legislation and the ongoing uncertainty regarding the tax’s structure, India has formally preserved its right to undertake reciprocal measures or seek rebalancing of trade concessions in the future.
After the European Union, the UK will become the second major economy to introduce a carbon pricing mechanism on imports. The levy, once implemented, may range between 14 to 24 percent of the import value, especially as free allowances under the Emissions Trading Scheme (ETS) are phased out.
CBAM is initially set to apply to imports of iron and steel, aluminum, fertilizers, hydrogen, ceramics, glass, and cement — sectors where India holds a competitive export edge.
India’s Commerce and Industry Minister Piyush Goyal raised concerns over this issue during his recent visit to London, stating that if the UK proceeds with the tax, India may consider a calibrated response.
The Indian government maintains that the integrity of its exports must not be compromised under the guise of environmental compliance and will continue to monitor the policy developments in the UK closely.
