{"id":362153,"date":"2026-05-04T21:08:34","date_gmt":"2026-05-04T15:38:34","guid":{"rendered":"https:\/\/forumias.com\/blog\/?p=362153"},"modified":"2026-05-04T21:08:58","modified_gmt":"2026-05-04T15:38:58","slug":"keeping-indias-carbon-money-at-home","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/keeping-indias-carbon-money-at-home\/","title":{"rendered":"Keeping India\u2019s carbon money at home"},"content":{"rendered":"

UPSC Syllabus: Gs Paper 3- <\/strong>Indian economy and Environment<\/p>\n

Introduction<\/strong><\/h2>\n

The European Union\u2019s Carbon Border Adjustment Mechanism (CBAM)<\/strong>, which charges a carbon price on imports based on emissions, came into force on January 1, 2026. It aims to ensure fair competition between domestic and foreign producers. However, Indian exporters face full costs without similar support. The core issue goes beyond trade fairness to control over carbon revenue<\/strong>, as these payments are collected at the EU border despite emissions originating in exporting countries like India.<\/p>\n

Understanding the Concept: Carbon Pricing and \u201c<\/strong>Carbon Money\u201d<\/strong><\/h2>\n
    \n
  1. Carbon pricing as the source of carbon money: <\/strong>Carbon pricing assigns a cost per tonne of emissions through systems like taxes or trading. Under CBAM, this cost is collected at the EU border, generating revenue from imports.<\/li>\n
  2. Carbon markets as trading systems: <\/strong>Carbon markets allow buying and selling of credits created from emission reduction activities. These credits represent verified reductions and help entities meet climate targets.<\/li>\n
  3. Scale and financial importance of carbon markets: <\/strong>Carbon pricing covers 28% of global emissions and generated over $100 billion in 2024. This shows its growing role in financing climate action and development.<\/li>\n
  4. Meaning of carbon money in this context: <\/strong>Carbon money refers to revenue generated from carbon pricing linked to exports. Under CBAM, this revenue is collected by the EU instead of the exporting country.<\/li>\n<\/ol>\n

    Major Issues and Concerns<\/strong><\/h2>\n
      \n
    1. Unequal competitive conditions: <\/strong>European industries receive decarbonisation subsidies and free allowances under the European Union Emissions Trading System (EU ETS), reducing their effective carbon cost. Indian exporters face full CBAM charges without similar support.<\/li>\n
    2. Conflict with fair trade principles: <\/strong>This imbalance goes against the spirit of General Agreement on Tariffs and Trade (GATT) Article III, which discourages protection of domestic producers through internal measures. It creates a tilted playing field in global trade.<\/li>\n
    3. No exemption under India\u2013European Union Free Trade Agreement (India\u2013EU FTA): <\/strong>The India\u2013European Union Free Trade Agreement (FTA) provides no exemption from CBAM, limiting India\u2019s immediate options. This shows the EU\u2019s strict position on uniform application.<\/li>\n
    4. Limited opening through Annex on Carbon Border Measures (Annex 14-A): <\/strong>Annex 14-A allows technical dialogue on CBAM implementation and carbon pricing recognition. It also ensures equal treatment if flexibility is granted to other countries.<\/li>\n
    5. Climate justice concerns: <\/strong>CBAM shifts the burden of decarbonisation to developing countries while Europe retains the revenue. This raises concerns about fairness in global climate responsibility.<\/li>\n
    6. Risk to policy sovereignty: <\/strong>If India cannot control carbon pricing or revenue, it risks becoming a rule-taker in the global green transition. This limits its ability to shape future climate rules.<\/li>\n<\/ol>\n

      Legal and Institutional Openings<\/strong><\/h2>\n
        \n
      1. Recognition under <\/strong>CBAM Regulation Article 9: CBAM allows deduction of carbon price already paid in the country of origin. This creates a legal basis for recognising India\u2019s domestic carbon pricing.<\/li>\n
      2. Carbon Credit Trading Scheme (CCTS): <\/strong>The Carbon Credit Trading Scheme (CCTS), notified in 2023, establishes a domestic carbon market with tradable certificates. It links carbon pricing directly to measured emissions in industries.<\/li>\n
      3. Avoiding double carbon pricing: <\/strong>Recognition of domestic carbon price ensures exporters do not face double payment under CCTS and CBAM. This supports fairness and reduces cost burden.<\/li>\n
      4. Conditions for credible recognition: <\/strong>Recognition requires robust monitoring, transparent exchange rates, and no export rebates. These conditions ensure the integrity of the carbon pricing system.<\/li>\n<\/ol>\n

        India\u2019<\/strong>s Strategic Response: Domestic Initiatives and Policy Tools<\/strong><\/h2>\n
          \n
        1. Existing Mechanism: Carbon Credit Trading Scheme (CCTS)<\/strong><\/li>\n<\/ol>\n