India added three more industries to the existing six industries already part of its Carbon Credit Trading Scheme Petroleum refineries, petrochemicals, and textiles are new sectors. The expansion increases the total number of obligated entities under the Indian Carbon Market’s compliance mechanism to 490. This timing is not random. A carbon tax on imports will begin in Europe this year. Indian exporters of steel, aluminum, and cement to the EU must pay millions of crores in taxes.
Steel exporters in Odisha and cement makers exporting to Rotterdam are primarily concerned with one question: will India's local carbon market protect them from Europe's border tax? The consequences are too significant for a facile response.
There are two changes facing Indian corporations in 2026. Over 740 large companies in nine industries must reduce carbon emissions under the Indian Carbon Credit Trading Scheme. Polluters must buy carbon credits from cleaner businesses or pay fines. Polluting Indian steel and cement exporters to Europe must pay carbon taxes under Europe's Carbon Border Adjustment Mechanism starting 1st January, 2026. Ancient Indian blast furnaces emit more carbon than European ones. This might cost the steel industry ₹50,000 crores and the aluminum business hundreds of crores. This high cost may hurt India's European exports.
The potential exists. The European Union has said that exporters can obtain credit for what they pay at home and not have to pay twice provided their country has its own "equivalent" carbon pricing system. It's like having your Indian income tax recognized in other nations so you don't have to pay tax in both places.
But here's the problem: Europe will only accept "equivalent" systems. What does the word "equivalent" mean? We don't know all the regulations yet, but we do know some things we need to do:
Europe has a long list of severe rules that India must follow in order to accept its carbon market system. First, corporations that pollute must pay a fair price for their carbon emissions. Next, we need to monitor the amount of pollution that is discharged very precisely and accurately, not just speculate. After that, reliable, independent auditors must review and corroborate this information. Europe also wants to make sure that India's goals for lowering emissions are real and not just for show. Lastly, there must be strict rules with punishments that are expensive enough to ensure everyone respects them.
The CCTS is India's new carbon trading system, and it has a number of major strengths. First, it includes a lot of big polluting industries, such as steel and cement, that release more than 700 million tonnes of pollutants. Second, CCTS is different from past systems that only tried to save energy. It specifically aims to cut down on greenhouse gases and sets clear goals for each plant. Third, it provides a market where manufacturers that are cleaner get credits to sell, and factories that are worse have to buy those credits or pay a fine. This gives factories a real reason to pollute less. Lastly, the system is meant to get harsher over time, with goals that will get harder every few years to encourage constant improvement. Collectively, these attributes provide CCTS with a legitimate foundation—one that, if reinforced, might establish the groundwork for Europe to acknowledge India's system and mitigate CBAM liabilities for Indian exporters.
The CCTS, India's new carbon market, might not work very well in a few places. The system's first targets are weak since corporations can reach them by utilizing money-saving tactics that actually increase emissions. This means that the laws aren't really pressing for change. Second, India's system simply sets goals for individual plants, so overall emissions can still go up. This is different from the EU's stringent limit on total pollution. Third, the measuring, reporting, and verification (MRV) criteria are vital, but they come with a lot of expenditures for businesses to follow, which is especially hard for smaller ones. They may not even fulfill European auditing standards. The cost of polluting in India will also be very low—around ₹1,000 per tonne—compared to the EU's cost of about ₹7,500-800 range. This makes one wonder if it will really stop pollution. Last but not least, the system doesn't assist pay for the big, expensive modifications that are needed, such as switching from blast furnaces that pollute a lot to cleaner ones in the steel industry.
Here's a problem you might not see: Thousands of small and medium-sized exporters don't pollute enough to be covered by CCTS, yet they still have to pay CBAM fees when they export. They can't show that their emissions are low. Europe will use "default values," which means they will assume that factories in the sector emit as much as the worst ones. This makes their goods cost 30 to 40 percent more right away.
These small firms can't pay the ₹5–10 lakh a year it costs to verify. They don't have any carbon credits to make up for CBAM. They're stuck in the middle: too little for CCTS and too big to ignore CBAM.
India must achieve certain prerequisites for Europe to recognize its system. First, the emission cutbacks must be real and more than what corporations usually do. Pollution reduction targets must be as tough as European factory targets. India also needs a reliable mechanism for independent auditors to measure, record, and check manufacturing emissions. Polluting companies in India must pay a substantial price to clean up. Finally, a carbon credit used to reduce a European export tax cannot be used to meet India's climate goals. Now, India's system only meets some of these needs, so the remainder must be corrected.
India must safeguard exports and industry immediately. Carbon accounting and verification must be modified first. Industry organizations must advocate for the government to give ₹200-300 crores for auditor training and subsidized exporter verification expenses. Second, greater 2027–30 climate goals are needed to encourage clean technology investment beyond repairing aging ones. The government should set a minimum price of ₹1,500-2,000 per carbon credit to prevent market crashes and promote value. Also, the government should support steel plant renovations. To protect trade and regulations, India and the EU must form a working committee now. The government must formulate a specialized support program for small and medium exporters, encompassing emissions assessment, verification, and fundamental abatement strategies. These enterprises are unable to independently absorb CBAM expenditures, and without assistance, thousands may lose access to European markets.
India's new carbon market, as it stands now, would not entirely safeguard exporters from Europe's carbon price unless it is made much stronger. The premise is good, but the first phase is about teaching firms rather than punishing them. This could make Europe reject it as a poor "carbon price lite" solution. If that happens, Indian exporters will pay the entire European carbon price, making them less competitive. India might compromise with Europe if it quickly establishes a system with precise data, higher goals, and fair carbon pricing. This would be better since Indian companies could pay their carbon taxes at home instead of in Europe, protecting the environment and exports.
India's new carbon market won't protect exporters from Europe's carbon tax. To succeed, the government must implement the carbon market, invest in smarter and cleaner technology, and negotiate with other nations. Indian enterprises must pay a carbon tax on items sold in India and exported to Europe. Who gets this money—European governments or Indian regulators to fund our green projects? We must swiftly make our system as robust as Europe's in practice, not just on paper, to keep money in India for renewable energy transformation. Since both systems are operational, the government's next moves will determine whether India wins this high-stakes global contest.
(Owais Ibni Hassan is a researcher at TrustBridge Rule of Law. The author can be reached at owaisibnihassan@gmail.com)
Views are personal, and do not represent the stand of this publication.
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