Introduction
India has finalized a new Free Trade Agreement (FTA) with the United Kingdom, but a key exemption is missing—relief from the UK’s upcoming carbon tax. According to the Global Trade Research Initiative (GTRI), this gap could severely impact India’s carbon-intensive exports like steel, aluminium, cement, and fertilisers, starting January 2027.
UK’s Carbon Border Tax Could Hurt Indian Exporters
The UK plans to implement its Carbon Border Adjustment Mechanism (CBAM) in 2027, mirroring the European Union’s approach to climate-linked import tariffs. This policy will affect goods with a high carbon footprint, including iron, steel, aluminium, fertiliser, glass, and cement.
“From January 2027, the UK can impose carbon taxes on Indian steel and aluminium, even as we grant UK goods duty-free access. That’s a serious asymmetry,” said GTRI founder Ajay Srivastava.
Estimated Impact on Indian Exports
GTRI estimates that $775 million worth of Indian exports to the UK may face 14% to 24% higher tariffs once CBAM is enforced. This could weaken India’s global competitiveness in key industrial sectors.
India’s Position and Future Options
India has repeatedly raised concerns over carbon border taxes, calling them discriminatory and trade-restrictive. While the current FTA lacks a carbon tax exemption, Indian negotiators have included provisions to seek remedies or rebalance concessions if CBAM harms Indian exporters.
A government official involved in the FTA negotiations stated that India retains the right to take action if carbon-related measures significantly impact trade in the future.
Conclusion
The India UK FTA carbon tax issue reveals the growing complexity of balancing trade deals with global climate policies. Without a carbon tax exemption, Indian exporters—especially in steel and aluminium—may face steep costs from 2027. Stakeholders are now watching closely to see how India responds to safeguard its industrial interests.
