India isn’t just objecting against CBAM . It’s building its own solution, one of which is known as Indian Carbon Credit Trading Scheme (CCTS), a legal mechanism with one clear job: keep carbon revenue in India instead of handing it to European treasuries.
Here’s the core difference from the EU’s approach. Cap-and-trade fixes a hard ceiling, you can only emit up to a certain total however under India’s market you are judged on how much carbon you emit per unit of product, not on a fixed total.
This is run by the Bureau of Energy Efficiency and the National Steering Committee. Also CCTS is the upgraded version of the old PAT scheme (Perform, Achieve and Trade), which already covered over a thousand entities. Now it tracks Scope 1 and Scope 2 emissions, and India has its own domestic compliance market.
Here’s where the two systems connect. CBAM lets importers deduct any carbon price already paid in the country of origin. So if Indian companies pay for carbon at home, before the goods ever leave the port, that money lands in the Indian Treasury instead of the EU Commission. India can then use that revenue back into its own green tech.
How does CCTS actually work?
The government hands large energy-consuming companies such as steel, cement, aluminum etc, a specific emissions intensity target. Per unit of output, not total output. A plant can increase its production if it meets the specified set goal.
Beat the target, and earn Carbon Credit Certificates (CCCs), one certificate per tonne of CO2 avoided. Miss it, and you have to buy certificates to cover the gap, or pay a penalty.
These certificates trade on domestic power exchanges. Efficient companies sell their surplus. Underperforming ones buy it.
For exporters, money spent on CCTS compliance counts as a domestic carbon price. Under EU rules, that gets deducted from the CBAM bill.
But here’s the catch: CCTS is a discount, not an exemption. And the discount isn’t very big yet.
EU ETS carbon price: €60 to €90 per tonne
Indian Carbon Credit Certificate, projected: €3 to €16 per tonne
That gap doesn’t disappear. Exporters still pay the difference at the European border.
The other fix is Indian manufacturers actually cutting emissions to match European benchmarks.
India isn’t sitting still on this. One idea on the table: the Indian Border Adjustment Mechanism (IBAM), a targeted export-side carbon tax applied before goods leave for Europe, capturing that remaining gap for the Indian Treasury instead of the EU.
India is using the ongoing Free Trade Agreement talks to push for a Mutual Recognition Agreement, essentially asking the EU to officially recognize India’s own carbon pricing as valid.
It looks like a good solution but implementing it is a different story. Policy mechanisms like IBAM run into real hurdles, technical, political, operational, all at once.
Start with the technical mismatch. The EU tracks total emissions while India tracks emissions intensity. Two different measuring sticks, and nobody’s agreed on a conversion rate yet.
Then there’s verification. The EU wants granular data, checked by independent auditors. India doesn’t have that network built out yet, not enough accredited verifiers to meet the standard the EU expects.
And underneath both of those sits the real risk: double taxation.
This is also the reason why India is pushing for a Mutual Recognition Agreement, a legal guarantee that Europe treats rupee-denominated carbon payments as an equivalent deduction under CBAM. If that doesn’t work, Indian exporters will get hit twice, at home and at the European border.
So who’s actually in the wrong here? Developed nations, or developing ones?
I don’t have an answer. What I can tell you is that global carbon pricing is going through a structural shift, and we’re standing right at the crossroads of it.
The choice ahead is simple to state and hard to make. Either climate action becomes a collaborative effort, or the world slides into a new kind of trade war with carbon as the new tariff line.
India’s defensive shield is a blueprint, a bet that you can build a cooler planet and a fair market at the same time.