New Delhi, July 25 — India has failed to secure an exemption from the United Kingdom’s upcoming carbon tax under the newly signed Free Trade Agreement (FTA), a development that could significantly impact carbon-intensive Indian exports, according to the Global Trade Research Initiative (GTRI).
The UK’s Carbon Border Adjustment Mechanism (CBAM), set to take effect in January 2027, will impose levies ranging from 14% to 24% on imports of high-emission goods such as steel, aluminium, cement, fertilisers, ceramics, and glass. Despite India’s persistent efforts during negotiations, the final agreement signed on July 24 did not include a carve-out or transitional relief for these sectors.
GTRI founder Ajay Srivastava warned of a “serious asymmetry” in the deal, noting that while the UK will enjoy duty-free access to Indian markets, Indian exporters will face additional costs on key products. “From January 2027, the UK can impose carbon taxes on Indian steel and aluminium, even as we grant UK goods duty-free access,” Srivastava said.
India had previously flagged CBAM as a non-tariff trade barrier and sought a transition period or exemption, arguing that such climate-linked levies disproportionately affect developing economies. Officials have indicated that New Delhi reserves the right to retaliate or rebalance concessions if future measures adversely impact domestic exports.
The UK becomes the second major economy after the European Union to implement CBAM. GTRI estimates that Indian exports worth $775 million to the UK—primarily in steel, aluminium, fertilisers, and cement—could be at risk.
While the broader FTA is expected to boost bilateral trade and investment, the unresolved carbon tax issue casts a shadow over India’s manufacturing competitiveness in the UK market. Talks on CBAM are expected to continue in parallel with the implementation of the trade pact.
