Carbon Credit Trading Scheme (CCTS): UK CBAM Recognition & Carbon Pricing

Subject: GS 03: Environment

Context: The U.K. has recognised India’s Carbon Credit Trading Scheme (CCTS) as an eligible carbon-pricing mechanism under its Carbon Border Adjustment Mechanism (CBAM), enabling carbon-price relief for qualifying Indian exports.

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Key Highlights of U.K. Recognition

• CBAM Carbon-Price Relief: U.K. importers of eligible Indian goods covered by CBAM can claim relief corresponding to the effective carbon price already paid under India’s CCTS, subject to evidence and verification requirements.
• Avoiding Double Carbon Taxation: The recognition follows the principle of avoiding double taxation, ensuring that goods already subjected to an eligible carbon price in India are not unnecessarily charged the same carbon cost again at the U.K. border.
• Boost to Indian Exporters: The recognition is expected to reduce the effective CBAM liability on eligible Indian exports, improving their competitiveness in the U.K. market; however, relief depends on the actual carbon price borne and verification.

About Carbon Credit Trading Scheme (CCTS)

• CCTS is India’s domestic carbon market mechanism that prices greenhouse-gas emissions through tradable Carbon Credit Certificates (CCCs), creating financial incentives for emission reduction.
• Launch & Evolution: The scheme derives its legal foundation from the Energy Conservation (Amendment) Act, 2022 and was formally notified by the Ministry of Power on June 28, 2023.
  • It represents a transition from the Perform, Achieve and Trade (PAT) mechanism towards a broader compliance-based carbon market.
• Objectives
  • Decarbonisation: CCTS aims to reduce, remove and avoid greenhouse-gas emissions across the Indian economy.
  • Carbon Pricing: It assigns an economic value to emissions, converting carbon reduction into a financial incentive or compliance liability.
  • Clean Technology: It encourages investment in renewable energy, energy efficiency and low-carbon technologies.
• Key Components
  • Compliance Mechanism: Designated energy-intensive industries receive greenhouse-gas emission-intensity targets, with compliance overseen by the Bureau of Energy Efficiency (BEE).
  • Offset Mechanism: Eligible non-obligated projects, including renewable-energy and forestry initiatives, can generate credits that may be sold to entities seeking to meet applicable requirements.
  • MRV Framework: A Monitoring, Reporting and Verification (MRV) framework ensures that reported emission reductions are measured and independently verified by accredited agencies.
  • Carbon Credit Certificates: Entities achieving emission reductions beyond prescribed requirements can receive Carbon Credit Certificates (CCCs), which can be traded through the Indian carbon market framework and designated power exchanges.

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