Carbon Tax

Carbon Tax: Recently, the UK's proposed carbon tax has raised concerns over its impact on Indian exports, posing a key hurdle in finalizing the India-UK Free Trade Agreement (FTA).

• About India-UK trade pact: India-UK FTA negotiations were launched on 13th January 2022. India and UK are on advance talks on three proposed pacts between both the countries:

o An FTA, a Bilateral Investment Treaty (BIT) and a social security agreement termed as the Double Contribution Convention Agreement (DCAA).

o UK remains unwilling to grant any concession under its Carbon Border Adjustment Mechanism (CBAM), which seeks to impose duties on carbon-intensive imports.

o The draft UK CBAM legislation states that the levy will apply to imported goods from January 1, 2027.

• About Carbon Border Adjustment Mechanism(CBAM): A policy by the European Union (EU) that puts a carbon price on imports from countries with weaker climate rules, to promote fair competition and cut global emissions.

o The carbon tax, first introduced by the EU, has also met with strong resistance in India.

o Goal: Supports the EU’s CBAM  and the target of net-zero emissions by 2050.

o Sectors Covered: Cement, steel, aluminium, fertilisers, electricity, and hydrogen – all high carbon-emitting industries.

o How it works: Importers must buy CBAM certificates that match the carbon emissions of their goods.

o The price equals the EU’s own carbon cost under the Emissions Trading System (ETS).If the exporting country already has a carbon tax, it will be adjusted to avoid double taxation.