{"id":61026,"date":"2025-12-08T17:06:37","date_gmt":"2025-12-08T11:36:37","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=61026"},"modified":"2025-12-16T18:04:46","modified_gmt":"2025-12-16T12:34:46","slug":"carbon-pricing-in-india","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/editorial-analysis\/08-12-2025\/carbon-pricing-in-india","title":{"rendered":"Carbon Pricing in India: Strategy and Future Roadmap"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/Economy; Environment<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<p>India\u2019s approach to the <strong>EU Carbon Border Adjustment Mechanism (CBAM)<\/strong>, currently focused on seeking exemptions, needs to evolve into a <strong>proactive carbon pricing strategy<\/strong> to secure long-term trade competitiveness, fiscal stability, and climate leadership.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background has-fixed-layout\" style=\"background-color:#fff2cc\"><tbody><tr><td><strong>Carbon Border Adjustment Mechanism (CBAM) of European Union<\/strong><br>1. It is designed to ensure <strong>carbon neutrality in trade<\/strong>, and mirrors the principle of the <strong>Value-Added Tax (VAT),<\/strong> a destination-based tax applied where consumption occurs.<br>2. It is <strong>reshaping global trade<\/strong> by imposing a carbon tax on imports of <strong>carbon-intensive goods<\/strong> such as<strong> steel, cement, aluminum, and fertilizers.<\/strong><br>3. It aims to prevent carbon leakage, where companies relocate production to countries with laxer climate regulations and to <strong>level the playing field for EU producers<\/strong> subject to strict emissions rules.<br>4. From January 2026, CBAM will directly link climate policy with economic competitiveness in the European Union (EU).<br>&#8211; The <strong>United Kingdom<\/strong> has expressed interest in <strong>adopting a similar mechanism<\/strong>, and other <strong>OECD countries<\/strong> are likely to follow.<br><br><strong>For India<\/strong><br>1. India is a major exporter of steel and aluminum to the EU.&nbsp;<br>2. CBAM requires exporters to report embedded emissions in their products and, starting in 2026, pay a carbon price equivalent to the <strong>EU\u2019s Emissions Trading System (ETS) rate.<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>About Carbon Pricing<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>It is a policy tool that puts a financial cost on greenhouse gas emissions, primarily carbon dioxide, to incentivize reductions in pollution and promote a shift towards cleaner energy sources.\n<ul class=\"wp-block-list\">\n<li>It works by making emitters pay for the environmental damage caused by their pollution, encouraging them to reduce emissions.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>The <strong>World Bank\u2019s \u2018State and Trends of Carbon Pricing 2025\u2019<\/strong> report has recognized India\u2019s growing role among emerging economies in shaping global climate finance and carbon pricing frameworks.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Why India Needs To Adopt A Robust Carbon Pricing Strategy?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Structural vulnerability to CBAM: <\/strong>India\u2019s exports, especially steel, aluminum, and cement are among the most carbon-intensive globally.\n<ul class=\"wp-block-list\">\n<li>They <strong>expose exporters to future carbon tariffs<\/strong> once the EU phases in full coverage, while temporary CBAM exemptions may defer compliance costs.<\/li>\n\n\n\n<li>Indian firms risk <strong>double taxation<\/strong> <em>(foreign CBAM and domestic mitigation costs)<\/em> without domestic carbon pricing.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Support Economy<\/strong>: In India,<strong> <\/strong>only about <strong>23% of Indian steel exports<\/strong> currently qualify for CBAM exemptions.\n<ul class=\"wp-block-list\">\n<li>It can be neutralized by enabling Indian exporters to claim <strong>\u2018equivalent carbon cost adjustments\u2019<\/strong>, effectively reducing EU CBAM liabilities.<\/li>\n\n\n\n<li>A transparent carbon pricing system can convert compliance costs into <strong>domestic revenue<\/strong>, rather than EU-bound tax transfers.<\/li>\n\n\n\n<li>The <em>OECD Green Fiscal Reform Report (2024)<\/em> estimates India could raise <strong>up to 1.5% of GDP annually<\/strong> through carbon taxes or emissions trading, funds that could finance <strong>green infrastructure and energy transition<\/strong> programs.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Industrial Competitiveness &amp; Low-carbon Innovation: <\/strong>According to <strong><em>IEA India Energy Outlook 2024<\/em><\/strong> and <strong><em>TERI Policy Paper on Carbon Pricing (2024)<\/em><\/strong>, carbon pricing incentivizes energy-intensive firms to invest in low-emission technologies, improving productivity.\n<ul class=\"wp-block-list\">\n<li>Evidence from South Korea and China shows that <strong>carbon markets reduce emission intensity by 10\u201315%<\/strong> within five years.<\/li>\n\n\n\n<li>India can <strong>future-proof its industries<\/strong> against border taxes while driving innovation in renewables and green hydrogen by internalizing the carbon cost.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Geopolitical Leverage In Climate Negotiations: <\/strong>A domestic carbon market can signal commitment to<strong> global net-zero targets<\/strong> and strengthen India\u2019s negotiating power in <strong>G20 and WTO CBAM discussions<\/strong>.<\/li>\n\n\n\n<li><strong>Institutional readiness: <\/strong>India already has the <strong>Perform, Achieve, and Trade (PAT)<\/strong> scheme and <strong>Renewable Energy Certificates (RECs)<\/strong>, both precursors to a <strong>national carbon market<\/strong> under the Energy Conservation (Amendment) Act, 2022.\n<ul class=\"wp-block-list\">\n<li>Integrating these into a <strong>unified carbon pricing framework<\/strong> would allow India to link with global markets by 2030.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>India\u2019s Rational Response<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>The Carbon Credit Trading Scheme (CCTS): <\/strong>India\u2019s proposed CCTS (set to launch mid-2026) is a step in the right direction. However:\n<ul class=\"wp-block-list\">\n<li>A <strong>cap-and-trade system<\/strong>, while elegant, is <strong>institutionally complex<\/strong>.<\/li>\n\n\n\n<li>It demands strong regulatory capacity and sophisticated financial infrastructure, features that developing economies are still building.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>The Carbon Tax Alternative: <\/strong>A <strong>carbon tax<\/strong> offers a simpler, more transparent, and administratively feasible solution.\n<ul class=\"wp-block-list\">\n<li>It can be integrated with India\u2019s <strong>Goods and Services Tax (GST)<\/strong> system.<\/li>\n\n\n\n<li>It provides <strong>price certainty<\/strong> for industries planning long-term investments.<\/li>\n\n\n\n<li>It ensures that India\u2019s fiscal policy aligns with <strong>global decarbonisation trends<\/strong>.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large is-resized\"><img data-dominant-color=\"c9d3ca\" data-has-transparency=\"false\" loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"559\" src=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/carbon-pricing-1024x559.png\" alt=\"carbon market\" class=\"not-transparent wp-image-61027\" style=\"--dominant-color: #c9d3ca; aspect-ratio:1.8318737860769414;width:662px;height:auto\" srcset=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/carbon-pricing-1024x559.png 1024w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/carbon-pricing-300x164.png 300w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/carbon-pricing-768x419.png 768w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/carbon-pricing-1536x838.png 1536w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/carbon-pricing.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<h2 class=\"wp-block-heading\"><strong>Way Forward: Roadmap for Phased Carbon Pricing in India<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Phase 1: Foundation Building (2025\u20132027): <\/strong>It includes establishing <strong>Legal and Institutional Framework<\/strong>, and setting up a <strong>central Carbon Market Authority<\/strong> to oversee design, implementation, and compliance.\n<ul class=\"wp-block-list\">\n<li>It needs to develop <strong>Monitoring, Reporting, Verification (MRV) Infrastructure, <\/strong>and mandate emissions reporting for large industrial emitters across sectors like power, steel, cement, and oil &amp; gas.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Phase 2: Transition to Compliance Market (2027\u20132030):<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Launch a National Emissions Trading System (ETS) <\/strong>with a <strong>cap-and-trade system for large emitters<\/strong> in key sectors (e.g., power, steel, cement), and <strong>introduce Carbon Tax for Non-Covered Sectors <\/strong>like transport and residential.<\/li>\n\n\n\n<li><strong>Link with International Carbon Markets <\/strong>like EU ETS to allow credit trading and reduce CBAM exposure.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Phase 3: Expansion and Deepening (2030\u20132035):<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>It includes <\/strong>expanding sectoral coverage in <strong>agriculture, aviation, and shipping; increasing carbon price progressively<\/strong>; and<strong> <\/strong>strengthening<strong> <\/strong>international cooperation.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Conclusion: A Strategic Reset<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The <strong>Carbon Border Adjustment Mechanism<\/strong> represents a regime change in the global economic order. For India, success lies in:\n<ul class=\"wp-block-list\">\n<li><strong>Accepting CBAM as a global norm<\/strong>, not an imposition.<\/li>\n\n\n\n<li><strong>Implementing a domestic carbon tax<\/strong> to capture revenue and protect exporters.<\/li>\n\n\n\n<li><strong>Pursuing deep EU integration<\/strong> as a foundation for sustainable trade.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>The CBAM is an opportunity for India to <strong>align fiscal policy, trade strategy, and environmental responsibility<\/strong>, marking the true beginning of its green economic transformation far from being a threat.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background has-fixed-layout\" style=\"background-color:#fff2cc\"><tbody><tr><td><strong>Daily Mains Practice Question<\/strong><br><strong>[Q]<\/strong> Discuss the importance of implementing a carbon pricing mechanism in India. What measures need to be taken to ensure that such a policy aligns with its developmental goals and international climate commitments?<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><a href=\"https:\/\/www.business-standard.com\/amp\/opinion\/columns\/cbam-changes-trade-rules-india-needs-carbon-pricing-not-exemptions-125120700765_1.html\" target=\"_blank\" rel=\"noopener\">Source: BS<\/a><\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/www.nextias.com\/ca\/wp-content\/uploads\/2025\/12\/Daily-Editorial-Analysis-08-12-2025.pdf\"><strong>Download PDF<\/strong><\/a><\/div>\n<\/div>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p><strong>Published on:<\/strong> 8th December, 2025<\/p>\n<p>\nIndia\u2019s approach to the EU Carbon Border Adjustment Mechanism (CBAM), currently focused on seeking exemptions, needs to evolve into a proactive carbon pricing strategy to secure long-term trade competitiveness, fiscal stability, and climate leadership. <\/p>\n","protected":false},"author":15,"featured_media":61036,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[22],"tags":[],"class_list":["post-61026","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-editorial-analysis"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/12\/carbon-pricing.webp","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/61026","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=61026"}],"version-history":[{"count":3,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/61026\/revisions"}],"predecessor-version":[{"id":61815,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/61026\/revisions\/61815"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/61036"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=61026"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=61026"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=61026"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}