UK CBAM Recognises India's CCTS: What Carbon Price Relief Means for Indian Exporters in 2027

For two years Indian exporters have watched the EU build a carbon border. On 8 September 2026 the second one, Britain's, became more navigable. HM Treasury confirmed that India's Carbon Credit Trading Scheme (CCTS) has been added to the UK's indicative list of qualifying overseas carbon pricing schemes under the UK Carbon Border Adjustment Mechanism (CBAM), which takes effect on 1 January 2027. The Bureau of Energy Efficiency was informed directly, and the decision followed technical discussions between the two governments under the UK-India Energy MoU.

Headlines have called it an exemption. It is not. What the UK has recognised is a mechanism through which an Indian factory can prove it has already paid for its emissions. Whether any particular shipment of steel, aluminium, cement or fertiliser actually pays less at the UK border still depends on three things: whether the product is in scope, whether the plant is an obligated entity under CCTS, and whether the exporter can evidence an effective carbon cost that UK verifiers will accept. This post walks through each of them.

What the UK actually decided

The UK CBAM regulations allow an importer to claim carbon price relief where imported goods have already borne an eligible carbon price in their country of origin. To be eligible, the overseas scheme must be run by a government or authorised public body, impose mandatory participation on covered installations, publish its rules and carbon price, and keep verifiable emissions data. The UK assessed CCTS against those criteria (Part 3, Regulation 6 of the CBAM Calculation of Rate and Carbon Price Relief Regulations 2026) and concluded that the scheme's design qualifies. India now sits alongside the EU, China, Japan, South Korea, Australia, Canada, Singapore, South Africa and others on the published list.

That is a real diplomatic and commercial win. It means Indian goods will not automatically be charged twice for the same tonne, once at home under CCTS and again at the British border. It also signals that the compliance market India built in record time, with its first compliance deadline behind it and first exchange trades expected by October 2026, is being taken seriously by trading partners.

How UK CBAM works from 1 January 2027

The UK mechanism is structured as a tax, not a certificate market, which makes it simpler on paper than the EU version. The essentials:

• Sectors in scope: aluminium, cement, fertiliser, hydrogen, and iron and steel. Glass and ceramics were dropped from the 2027 launch and may be added later.

• Emissions covered: direct (Scope 1) emissions from production, including relevant precursor goods. Indirect emissions from purchased electricity are deferred until 2029 at the earliest, which matters a great deal for Indian plants running on coal-heavy grid power.

• Who pays: the UK importer. Registration with HMRC is required once covered imports exceed £50,000 over any 12-month period.

• The rate: HMRC will publish a sector-specific CBAM rate each quarter, reflecting the effective carbon price UK producers pay under the UK ETS after free allowances. The first 2027 rates have not yet been published.

• The formula: embedded emissions × applicable UK CBAM rate, minus eligible overseas carbon price relief. Where verified plant data is not available, default values apply.

Although the British buyer files the return, the cost travels backwards through the contract. Importers will ask for emissions data, push for price adjustments or move volumes to suppliers who can document lower intensity. The Indian exporter never receives a tax notice, but it can still lose the order.

Recognition is not exemption: how relief is calculated

Relief is tied to the effective carbon price actually borne on the emissions embedded in the goods. The UK guidance is explicit that a headline scheme price is not enough; emissions covered by free allocation, rebates, compensation or an unused obligation do not generate relief. Under CCTS this has a specific consequence. The scheme is intensity-based: a plant that beats its target earns Carbon Credit Certificates rather than buying them. That plant has no carbon cost to claim relief on. Its route to a lower UK bill is the other one: lower verified embedded emissions, which cut the gross liability before relief is even considered.

There are two ways to shrink a UK CBAM bill: carry fewer tonnes in the product, or prove you already paid for the tonnes you carry. The strongest Indian exporters in 2027 will do both.

A purely illustrative example makes the mechanics clear. Suppose a consignment of steel carries 100 tonnes of chargeable direct emissions and the UK steel rate for that quarter is £50 per tonne. The gross liability is £5,000. If the exporting plant surrendered CCCs to close a shortfall against its CCTS target, and verified records show an effective cost equivalent to £12 per tonne on those emissions, the importer can claim £1,200 of relief and pays £3,800. If the plant met its target without buying certificates, relief is zero and the bill is £5,000, unless verified data shows the emissions were lower than the default in the first place. The relief can never exceed the UK liability, and if the Indian price is lower than the UK price, the UK collects the difference.

Which Indian exporters can actually claim relief

Four of the UK's five CBAM sectors overlap with India's CCTS compliance roadmap: aluminium, cement, fertiliser and iron and steel. Hydrogen is not among India's nine notified compliance sectors, so Indian hydrogen exports will face the full UK rate with no CCTS relief. Within the overlapping sectors, relief flows only to plants that meet all of the following conditions:

• The exported product falls within the UK CBAM commodity codes. Coverage is by customs classification, not by industry label, so a company in a covered sector should not assume every SKU is in scope.

• The producing installation is an obligated entity with notified GHG intensity targets under CCTS. Roughly 490 entities across seven sectors currently carry targets. Aluminium and cement plants have been in from the first cycle; steel and fertiliser units should confirm exactly which of their plants have targets notified and from which compliance year.

• The plant actually incurred a carbon cost, meaning it purchased and surrendered CCCs, and can evidence the number and price of certificates surrendered against the emissions embedded in the exported goods.

• The emissions and cost can be traced through the supply chain to the goods that cross the UK border, including precursor stages made at other installations.

This is why the recognition will matter most for integrated producers who own the full production chain and already run plant-level MRV. For aluminium smelters there is an additional nuance: the bulk of their footprint is electricity, which the UK will not tax until 2029 at the earliest, so the 2027 UK bill will be driven mainly by anode and process emissions.

The evidence UK importers will ask for

Relief is claimed by the importer, but the documents come from the Indian plant. Expect requests for the following, and expect them well before January 2027 because UK buyers will want to know their landed cost when they negotiate 2027 contracts:

• Verified installation-level direct emissions and production data, allocated to the specific product and period shipped.

• Evidence of CCTS coverage: the notification listing the plant as an obligated entity and its GHG intensity target.

• The compliance filing, the number of CCCs surrendered, the prices paid on the exchange and registry records showing the surrender. Understanding how CCC trading works under the CERC rulebook is now part of export documentation, not just compliance.

• A declaration of any free allocation, rebate, compensation or refund that reduced the effective cost.

• A carbon pricing verification form completed by an accredited verifier where the UK rules require one.

A plant that cannot produce this will be assessed on UK default values. Defaults are designed to be conservative, which means a relatively clean Indian producer without documentation can end up taxed as though it were a dirty one. Under both border mechanisms, being cleaner helps; being able to prove it is what actually moves the invoice.

UK CBAM vs EU CBAM: two borders, two rulebooks

Exporters serving both markets should not assume one data pack satisfies both. The EU CBAM entered its definitive phase in January 2026, with certificate sales starting in February 2027 at prices tracking the EU ETS (the Q2 2026 reference price was €75.28 per tonne). It covers electricity and a wider product list, treats indirect emissions differently by product, and requires importers to buy and surrender certificates. The UK version is a quarterly-rated tax with a narrower initial scope and indirect emissions parked until 2029. Crucially, the EU has not yet formally listed CCTS as a recognised carbon price in the way the UK now has, so the relief position in Brussels remains a matter of bilateral negotiation rather than published law. The UK decision strengthens India's hand in that conversation, but it does not settle it.

What to do before January 2027

• Map every exported product to UK CBAM commodity codes and identify which UK customers will cross the £50,000 registration threshold.

• Confirm the CCTS status of every installation in the production chain, including precursor suppliers, and whether each will be a buyer or seller of CCCs in the current compliance cycle.

• Build a product-level emissions ledger that separates direct from indirect emissions, since the UK taxes only the former in 2027 while the EU treats them differently.

• Renegotiate 2027 supply contracts to specify who provides emissions data, who bears verification cost, and how CBAM liability is shared if data is late or rejected.

• Model the trade-off between buying CCCs to close a shortfall (which creates claimable relief) and investing in abatement (which cuts the gross liability permanently). For most plants the second option wins over more than one compliance cycle.

Where Csquare fits

Csquare works with Indian manufacturers on exactly the intersection this decision creates: CCTS compliance strategy, plant-level GHG accounting and MRV that will stand up to overseas verification, CCC procurement and surrender planning, and CBAM data packs for both UK and EU importers. If you export steel, aluminium, cement or fertiliser to the UK and want to know what your 2027 border bill looks like under each scenario, or need to get your evidence trail in order before your buyers ask, talk to our team.