EU CBAM vs Indian Carbon Credit Market: What Exporters Need to Know

Key Takeaways

• No Double Counting: You cannot sell carbon credits in India and claim them as emission reductions for CBAM.
• Carbon Price Deduction: If you pay a carbon tax in India (e.g., under CCTS), that amount can be deducted from your CBAM liability.
• Price Gap: EU ETS prices (€70) are currently much higher than expected Indian CCTS prices (€5-10).

Introduction

As India rolls out its own Carbon Credit Trading Scheme (CCTS), exporters are confused. Can buying Indian credits help lower EU CBAM taxes? The answer is nuanced. EU Regulation 2023/956 allows for a deduction of "carbon price paid in the country of origin," but strictly regulates what qualifies.

The "Carbon Price Paid" Mechanism

If an Indian steel mill pays a carbon tax or buys compliance credits (CCTS) in India for its emissions:

1. Calculate CBAM Liability: e.g., €200 per tonne of steel.
2. Deduct Domestic Cost: e.g., you paid equivalent of €10 per tonne in India.
3. Net CBAM Payment: €200 - €10 = €190 per tonne to the EU.

Why Voluntary Credits (Offsets) Don't Work

Buying voluntary offsets (e.g., planting trees, Verra/Gold Standard credits) does NOT count for CBAM.

• EU ETS Logic: The EU only recognizes "Compliance Markets" (Cap-and-Trade or Carbon Tax).
• Risk: Many Indian companies buying "offsets" thinking they are "Carbon Neutral" will find their products are still full-taxed under CBAM. "Green Steel" marketed via offsets is not "Green" under CBAM rules.

The Price Arbitrage Problem

Even if the CCTS is fully operational:

• EU Price: ~€80/tonne CO2.
• India Price: Likely starting <€15/tonne CO2.
• Result: The difference (€65) must still be paid to the EU. The revenue leaves India. This is why the Indian government is keen to align CCTS prices or impose an export tax to keep the revenue domestic.

2025-2026 Regulatory Impact for India

• Global Harmonization: We expect the EU and India to negotiate potential mutual recognition of verification standards, but price equalization is unlikely by 2026.
• Strategy: Exporters should prioritize actual decarbonization (hydrogen, electrification) over financial hedging via credits, as the latter only offers partial relief.

Frequently Asked Questions

Q: Can I use RECs (Renewable Energy Certificates) for CBAM?

A: In some cases, yes, for Scope 2 emissions, provided there is a direct link (PPA) between the renewable generation and consumption. Generic unbundled RECs are scrutinized heavily.

Q: Will the "Cess" on coal in India count as a carbon tax?

A: It is debated. If the Indian government officially classifies the Coal Cess as a "Carbon Tax," it might be deductible. Currently, it is not automatically accepted.

Confused by the markets? Get a CBAM readiness assessment to understand your financial exposure across both regimes.