India wants the European Union (EU) to repatriate revenue that the latter has collected as carbon tax from Indian exporters, once the Carbon Border Adjustment Mechanism (CBAM) kicks-in. The repatriated revenue will be used here for funding the country’s climate objectives, said officials who are part of the discussions.

According to officials, at a recent stakeholder meeting carried out by one of the key ministries, the various options for consideration include a demand for waiver or exemption as part of Free Trade Agreement (FTA) negotiations.

Revenue repatriation

During a meeting held earlier this week, it was said that India is compliant with the United Nations Framework Convention on Climate Change (UNFCCC obligations). And a waiver or exemption from compliance with CBAM is likely to be built into the ongoing FTA discussions. If not, CBAM revenue repatriation will be proposed.

“The EU should agree revenues collected by EU from imports on India should be segregated and repatriated to India to use for its climate objectives,” an official reportedly said during the meeting. As of now, such revenues flow into the EU budget to meet EU’s climate goals.

Officials says, the UNFCCC allows equivalence with EU of both emission reduction and carbon pricing; while they point out that CBAM continues to be “against WTO’s principles”. These do not allow for recognition of product differentiation based on “embedded emissions”.

“EU is not looking at equivalence of emission reductions, but equivalence of price,” the official said.

The European Commission adopted the rules governing the implementation of the CBAM during its transitional phase, which starts on October 1, “and runs until the end of 2025”.

In the CBAM’s transitional phase, “traders will only have to report on the emissions embedded in their imports subject to the mechanism without paying any financial adjustment.” 

From January 1, 2026, the EU importers will have to buy CBAM certificates, corresponding to the embedded emissions above the EU-ETS benchmark levels. Currently, the price of such credits are pegged at Euro 85 per tonne (approx) of CO2, “which will progressively increase”.

Steel and aluminium exports are said to be amongst the worst hit sectors with the CBAM reporting mechanism coming into effect.

India’s Demands So Far 

As per the official, present during the stakeholder meetings, India’s demands so far include exemption of MSME sector from EU-CBAM (one that has likely been shot down) and linkage of Indian carbon market (Carbon Credit Trading System), which is still in the works — with EU — CCTS and it includes procedural and technical harmonisation. The CBAM regulations envisage a possibility of agreement with third countries with a view to taking into account carbon pricing. Officials said, carbon pricing under Indian framework may not however be equivalent to EU; and hence there could be limited benefits.

It has also sought accreditation of India’s accredited carbon verifiers by EU for “embedded emissions verification”. Such an accreditation will allow cost-advantage for Indian verifiers. Currently only accredited verifiers under EU 2018 / 2067 can verify Green House Gas emissions. There are some subsidiaries of these EU certified verifiers here in India.