India’s Carbon Market and EU CBAM

Strategic analysis of the interaction between India’s Carbon Credit Trading Scheme, the EU Emissions Trading System and CBAM — and how carbon pricing, regulatory cooperation and possible future market integration could affect Indian exporters’ access to the European market.

The EU–India economic relationship is entering a new phase. Trade liberalisation through the negotiated EU–India Free Trade Agreement is only one part of the equation. For carbon-intensive industries, access to the European market is increasingly influenced by another policy architecture: the interaction between the EU Emissions Trading System (EU ETS), the Carbon Border Adjustment Mechanism (CBAM) and carbon pricing in the exporting country.

This creates a strategically important question for India: could the development of India’s own carbon market eventually lead to closer integration with the EU ETS and reduce the effective CBAM burden on Indian exports?

The answer requires an important distinction. India does not need to “join” the EU ETS in the same way as an EU Member State. EU legislation provides another route: the EU ETS can be linked with a compatible emissions trading system established by a third country.

1. Can India join the EU ETS?

Direct participation in the EU ETS and formal linkage with the EU ETS are different concepts.

The EU ETS currently operates within the European institutional framework. Norway, Iceland and Liechtenstein participate through the European Economic Area framework, while Switzerland represents a different model.

The Swiss Emissions Trading System is linked to the EU ETS through a bilateral linking agreement that entered into force in 2020.

This precedent demonstrates that a non-EU country does not necessarily need to become part of the European Union in order for its emissions trading system to be formally linked with the EU ETS.

2. What does the EU require for ETS linking?

EU ETS legislation allows the European Union to conclude agreements linking the EU ETS with compatible emissions trading systems operating at national or regional level in third countries.

The European Commission identifies compatibility, mandatory participation and an absolute emissions cap as fundamental conditions for linking. The panels below also explain the associated integrity requirements:

3. Where does India stand?

India is developing its carbon-market architecture through the Carbon Credit Trading Scheme (CCTS). Its compliance mechanism uses greenhouse-gas emission-intensity targets for notified obligated entities: emissions per unit of output, rather than a single absolute cap on total emissions.

According to the Bureau of Energy Efficiency (BEE), entities that outperform their intensity targets may receive Carbon Credit Certificates. Entities that fail to meet their targets must purchase and surrender certificates corresponding to their shortfall. Applicability and targets must be checked against the notifications covering each installation; aluminium-sector coverage does not mean that every producer has the same obligation.

The CCTS also has an offset mechanism, distinct from its compliance mechanism. An Indian Carbon Credit Certificate is not automatically equivalent to an EU ETS allowance, and buying or surrendering Indian credits does not automatically establish eligibility for a CBAM deduction.

For EU-bound exports, companies must establish whether a qualifying carbon price was effectively paid for the relevant embedded emissions and whether the evidence satisfies the applicable EU rules. Indian target compliance, Indian verification and CBAM emissions verification must be assessed under their respective frameworks.

Official Indian source: BEE — Indian Carbon Market and CCTS compliance mechanism .

4. EU and India have already opened the door to cooperation

This issue is no longer purely theoretical.

In the EU–India Joint Comprehensive Strategic Agenda adopted at the EU–India Summit on 27 January 2026, the two sides agreed to work towards sharing experiences on the design and implementation of India’s Carbon Credit Trading Scheme and the EU Emissions Trading System, and to explore further cooperation.

5. India does not need full ETS linking to obtain a CBAM benefit

This is one of the most commercially important aspects of the relationship.

Under the definitive CBAM regime, if an importer can demonstrate that a carbon price has already effectively been paid in the third country for the embedded emissions associated with production of the imported goods, the corresponding amount can be deducted from the CBAM obligation in accordance with the applicable EU rules.

Therefore, an effective Indian carbon price could become relevant for exporters even before any formal EU–India ETS linking agreement exists.

6. Three possible scenarios for India

7. Why Scenario B may be more important in the short term

A formal EU–India ETS linking agreement would be a major institutional undertaking. It would require substantial convergence between the design of the Indian system and the EU ETS and a negotiated international agreement.

Recognition of a carbon price already paid in India under CBAM is a different mechanism.

It does not require India to become part of the EU ETS.

For Indian industry, this means that improvements in domestic carbon pricing and the quality of emissions measurement can have economic value in the European market even before the much more ambitious objective of formal ETS linking is reached.

8. Why this is particularly important for aluminium

Aluminium is among the sectors covered by CBAM.

For Indian aluminium producers exporting to the European Union, future competitiveness can therefore depend on several variables simultaneously:

• the commercial price of the aluminium;
• the applicable EU customs tariff;
• future preferential treatment under the EU–India FTA;
• embedded emissions associated with production;
• the carbon price effectively paid in India;
• the amount recognised for CBAM purposes;
• the EU ETS-linked CBAM certificate price.

9. A simple economic example

Assume, solely for illustration, a CBAM obligation equivalent to €150 per tonne of aluminium before any eligible deduction for a carbon price paid in India, with all other regulatory adjustments already reflected. Assume that the Indian payment is fully eligible, documented and recognised for the same embedded emissions.

The Indian producer and EU importer may bear different payments. Their commercial allocation depends on prices and contractual terms. The table combines the two payments for supply-chain analysis; it does not assume that a single company pays both directly. When comparing landed costs, avoid counting an Indian carbon cost twice if it is already included in the supplier's quotation.

If only part of an Indian payment qualifies for deduction, the combined cost can be higher than in this illustration. Lower embedded emissions can improve competitiveness, but the resulting CBAM obligation must be calculated with the applicable methods and adjustments.

10. Carbon pricing could change the competitive position of suppliers

This has implications beyond regulatory compliance.

European aluminium buyers increasingly need to compare the carbon-adjusted landed cost of competing suppliers rather than the invoice price alone.

Supplier comparisons should consider verified embedded emissions, the carbon cost already reflected in the quoted price and the remaining CBAM obligation. Recognition of an eligible Indian carbon payment can avoid an additional charge for the recognised amount; it does not, by itself, prove a lower total carbon cost or a competitive advantage.

11. What would formal EU–India ETS linking require?

A future linking process would go substantially further than recognition of a domestic carbon price for CBAM purposes.

India would need a system capable of meeting the fundamental conditions required by EU legislation and any additional requirements established in negotiations.

Areas likely to require close examination would include:

• mandatory participation;
• the nature and stringency of the emissions cap;
• sectoral coverage;
• monitoring, reporting and verification;
• registry architecture;
• compliance and enforcement;
• allocation mechanisms;
• treatment of carbon credits;
• environmental integrity of units;
• market oversight;
• mutual recognition of allowances.

12. The Swiss precedent

Switzerland provides the clearest existing example of an external ETS formally linked with the EU ETS.

The EU and Switzerland signed their linking agreement in 2017 and the agreement entered into force on 1 January 2020.

The Swiss case demonstrates both that international linking is legally possible and that it requires detailed technical and institutional compatibility.

13. What Indian exporters should do now

Indian exporters should not wait for a hypothetical future linking agreement.

For companies supplying CBAM goods to Europe, the immediate priorities are operational.

1. Determine whether exported products fall within CBAM scope.
2. Identify the production installation associated with EU-bound goods.
3. Establish robust embedded-emissions measurement.
4. Prepare emissions data that can satisfy EU importer requirements.
5. Understand applicable verification requirements.
6. Document any carbon price effectively paid in India.
7. Assess whether and how that carbon cost may qualify for CBAM deduction.
8. Compare the combined Indian carbon cost and remaining CBAM obligation with competing suppliers, avoiding double counting costs already included in the quotation.
9. Monitor the development of India's CCTS.
10. Monitor EU–India regulatory cooperation on carbon pricing.

14. What European importers should monitor

European importers should increasingly treat carbon data as part of supplier due diligence and procurement.

For Indian suppliers, relevant questions include:

• Which installation produced the goods?
• What are its verified embedded emissions?
• What carbon price was effectively paid?
• Can the payment be documented?
• Does it qualify for deduction under CBAM?
• Is the Indian carbon cost already included in the supplier quotation?
• How do combined carbon costs and landed costs compare with alternative origins?

15. Strategic outlook

The development of India's carbon market creates a potentially important bridge between Indian industrial policy and access to the European market.

In the short term, the most commercially relevant issue is likely to be whether carbon costs effectively paid in India can be demonstrated and recognised under the CBAM framework.

In the medium term, increasing compatibility between the CCTS and EU ETS methodologies could facilitate trade, emissions reporting and carbon-cost comparability.

In the longer term, deeper carbon-market cooperation — potentially including formal linking if the legal and technical conditions were eventually met — cannot be excluded.

However, there is currently no decision or agreement establishing EU–India ETS linking, and such an outcome should not be treated as inevitable.

16. What eEuropa will watch

• implementation and evolution of India's Carbon Credit Trading Scheme;
• EU–India technical discussions on CCTS and EU ETS;
• changes in Indian industrial carbon-pricing rules;
• EU rules for recognition of carbon prices paid in third countries;
• CBAM certificate prices;
• CBAM default values and benchmarks;
• EU–India FTA implementation;
• sector-specific effects on aluminium, steel and other CBAM goods;
• any future EU–India discussions concerning carbon-market interoperability or linking.

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Acronyms and Abbreviations

The following acronyms and abbreviations are used throughout this eBriefing.