India reserves right to take steps if UK’s proposed carbon tax hits exports

New Delhi: The India-UK free trade agreement does not include a provision on Britain’s proposed carbon tax, but if such a tax is imposed in the future, India will have the right to take steps to mitigate its impact on domestic exports, sources said on Friday.

The UK government in December 2023 decided to implement its Carbon Border Adjustment Mechanism (CBAM) starting in 2027.

Sources said that India had flagged the issue during negotiations of the trade agreement. The comprehensive economic and trade agreement (CETA) was signed on July 24 with an aim to double bilateral trade from $56 billion by 2030.

They added that the issue is not in the pact as Britain has not yet notified the tax.

“But if it will be implemented and if it will negate trade benefits of India under the agreement, India will have the freedom to rebalance it. This much understanding has been made in the form of note verbale,” sources said.

A note verbale is a diplomatic communication between two countries. “There is an understanding that in case the UK make it effective against India in future, then we will also have the right to take counterbalance measures...India can take away the concessions, and there will be a mechanism for that,” they added.

Economic think tank GTRI said that by not securing a carve-out or exemption clause on CBAM, India lost a vital opportunity to protect its carbon-intensive exports.

The GTRI in May stated that India’s exports worth $775 million to the UK may be impacted due to Britain’s decision to introduce a carbon tax on products such as iron and steel, aluminium, fertiliser, and cement, from 2027.