CCTS and CBAM: How the Carbon Price Offset Deduction Works for India | Reclimatize.in
Home › Research › India’s CCTS and CBAM: The Offset Deduction
Carbon Markets · CBAM · Policy AnalysisIndia’s CCTS and CBAM: How the Carbon Price Offset Deduction Works and What India Must Do to Claim It
India’s Carbon Credit Trading Scheme and the EU’s Carbon Border Adjustment Mechanism are not two separate compliance problems. They are one interconnected system — and the connection point is Article 9 of the CBAM Regulation, which allows Indian exporters to deduct domestic carbon costs from their CBAM obligations. The deduction is real. The conditions for claiming it are demanding. And the gap between having a carbon market and having a recognised carbon market is where India’s strategic work now lies.
Article 9 of the CBAM Regulation allows any carbon price effectively paid in the country of origin to be deducted from the number of CBAM certificates an EU importer must surrender. This is not a future provision — it is live from January 2026, though the implementing rules for third-country deduction are still being finalised.
The deduction does not happen automatically. The EU importer must claim it in the CBAM declaration, supported by verified evidence of the carbon price paid at the installation level in India. Without that evidence, no deduction applies — and the full CBAM levy stands.
For the deduction to be meaningful, India’s CCTS must be structured so that the carbon price it generates is verifiable, attributable to specific production installations, and denominated in a way that EU implementing rules can recognise. An intensity-based credit scheme creates different evidence challenges than a pure cap-and-trade with an explicit allowance price.
From 2027, the European Commission will publish default carbon prices for third countries in the CBAM registry. Until then, actual prices paid must be demonstrated on a case-by-case basis with documentation that EU competent authorities will accept.
CSEP estimates the CBAM-CCTS offset deduction could retain revenue equivalent to approximately 1% of India’s GDP within India by 2030, rather than that revenue flowing to European member state treasuries. The strategic and fiscal stakes are significant.
India’s CCTS currently covers nine sectors under an intensity-based baseline-and-credit design. For the Article 9 deduction to flow smoothly, BEE and MoEFCC need to build installation-level CCC price transparency into the market’s reporting infrastructure — a technical requirement that the Indian Carbon Market Portal launched in March 2026 must eventually satisfy.
Why this question matters now
Most coverage of India’s Carbon Credit Trading Scheme focuses on what obligated entities must do to comply with it. Most coverage of CBAM focuses on what Indian exporters will owe at the EU border. Very little attention goes to the single most important interaction between the two — the carbon price deduction mechanism in Article 9 of the CBAM Regulation, which determines whether Indian companies pay their carbon costs once or twice.
The principle is straightforward. CBAM exists to ensure that imports from non-EU countries face the same carbon cost as EU producers face under the EU Emissions Trading System. If an Indian steel plant, aluminium smelter or fertiliser producer is already paying a carbon price domestically — through India’s CCTS — then levying the full CBAM cost on top of that domestic payment would mean pricing those emissions twice. Article 9 prevents this by allowing the EU importer to deduct the carbon price already paid in the country of origin from the number of CBAM certificates they must surrender.
The strategic importance of this deduction for India cannot be overstated. CSEP has estimated that an effective CCTS-CBAM linkage could retain revenue equivalent to approximately 1% of India’s GDP within the country — revenue that would otherwise flow to EU member state treasuries through CBAM certificate purchases. That is the difference between India’s carbon pricing revenue staying in India to fund industrial transition, and that same revenue being captured by Brussels.
But claiming the deduction is not automatic. It requires verified evidence, documentation the EU will accept, and — eventually — a formal recognition process that the Commission has not yet completed. This article explains how Article 9 actually works, what the evidence requirements are, where the complexity lies for an intensity-based scheme like India’s CCTS, and what needs to happen on both the Indian and European sides before the deduction flows seamlessly for Indian exporters.
For a full explanation of how the CCTS works mechanically — targets, sectors, baseline year, the CCC market structure — see our earlier analysis: India’s Carbon Credit Trading Scheme: How the CCTS Works.
Article 9 — what the CBAM Regulation actually says
Article 9 of the CBAM Regulation (EU) 2023/956 states that an authorised CBAM declarant may claim a reduction in the number of CBAM certificates to be surrendered, to reflect the carbon price already paid in the country of origin for the declared embedded emissions. The provision defines a “carbon price” as any monetary amount paid in a third country under a carbon emissions reduction scheme, whether in the form of a tax, levy, fee or emission allowances under a greenhouse gas emissions trading system.
The CBAM Omnibus Simplification Regulation (EU) 2025/2083, which entered into force on 20 October 2025, added important clarifications to this provision. From 2027, the European Commission will determine and make available in the CBAM registry default carbon prices for third countries where carbon pricing mechanisms are in place, using reliable, publicly available information and data provided by those governments. This is the pathway through which a recognised and well-documented carbon market like India’s CCTS could eventually generate a standing default price that EU importers can use automatically.
Until those default prices are established, however, the actual carbon price paid must be demonstrated on a case-by-case basis, with documentation sufficient to satisfy the competent authority in the EU member state handling the CBAM declaration. ICAP notes that the implementing acts governing exactly how third-country deductions are calculated and documented are still being finalised — the Commission launched a call for evidence on this specific question in August 2025, with responses informing the delegated acts expected through 2026.
One important clarification from the Omnibus regulation: carbon prices paid in a third country other than the country of origin are also eligible for deduction, provided corresponding evidence can be furnished. This matters for complex supply chains where precursor goods cross borders before final processing.
The CBAM deduction is claimed by the EU importer in their annual CBAM declaration — not directly by the Indian producer. This means Indian exporters need to furnish EU importers with verified, installation-level emissions and carbon price data in a format that EU competent authorities will accept. The burden of documentation sits jointly between the Indian producer and the EU importer. If the documentation is absent or inadequate, the deduction cannot be claimed — and the full CBAM cost stands.
How the deduction is calculated — the mechanics
The number of CBAM certificates that can be deducted is calculated by converting the domestic carbon price into EU ETS-equivalent terms. If an Indian steelmaker pays a carbon price of, say, Rs 500 per tonne of CO₂ equivalent through the CCTS — whether through purchasing Carbon Credit Certificates to cover a compliance shortfall, or through the implicit cost embedded in the intensity target itself — that cost must be expressed as a per-tonne EUR figure and deducted from the CBAM certificate obligation for the corresponding emissions.
In a pure cap-and-trade system with an explicit allowance price — like the EU ETS itself — this calculation is straightforward. The price per tonne of CO₂ is observable, documented and auditable. The challenge with India’s CCTS is that it is an intensity-based baseline-and-credit scheme, not a cap-and-trade. This creates several complications that are worth examining carefully.
The intensity-based design challenge
In an intensity-based scheme like the CCTS, entities do not buy and surrender a fixed number of allowances for each tonne they emit. Instead, they receive a target in tCO₂e per unit of output. Entities that beat the target earn Carbon Credit Certificates that they can sell. Entities that miss the target must buy CCCs to cover their shortfall or face penalties. The “carbon price” in this system is therefore the market price at which CCCs trade on Indian power exchanges — not a fixed administrative levy.
For an entity that beats its target and sells CCCs, the situation is nuanced: their net carbon cost is actually negative — they received revenue from the carbon market rather than paying into it. Article 9 explicitly accounts for rebates and compensation: “any rebate or other form of compensation available in that country that would have resulted in a reduction of that carbon price shall be taken into account.” This means CCC revenues earned by Indian producers would reduce or eliminate their Article 9 deduction claim for those emissions.
For an entity that misses its target and must purchase CCCs, the cost of those CCCs is their carbon price for Article 9 purposes. The deduction amount per tonne of exported goods would be calculated by attributing the CCC purchase cost to the specific goods exported to the EU, using the verified emissions methodology already required for CBAM reporting.
An Indian steel or aluminium producer that outperforms its CCTS target — earning and selling CCCs — may have a net zero or near-zero carbon cost under Article 9, because the CCC revenue offsets any compliance expenditure. For these producers, the CCTS does not reduce their CBAM liability in the way many assume. The Article 9 deduction is proportional to the net carbon cost actually borne — not simply to the fact of being covered under a carbon market. This is a critical nuance that Indian exporters and their EU trading partners need to understand before the first CBAM declarations are filed in September 2027.
What the evidence requirements look like in practice
For an EU importer to successfully claim an Article 9 deduction on behalf of an Indian producer, the following chain of documentation must exist and be verifiable:
The CBAM declaration requires embedded direct and indirect emissions per tonne of exported good, calculated using EU-specified methodology and verified by a third-party accredited verifier. This is the same emissions data that CBAM requires regardless of any Article 9 claim. Indian producers must have this data regardless — but the quality of verification matters. Only data verified to EU accreditation standards (or standards the Commission recognises as equivalent) is accepted.
The producer must document what carbon price was effectively paid for the embedded emissions in the exported goods. For CCTS-covered entities, this means demonstrating either: (a) the cost of CCCs purchased to cover a compliance shortfall, attributed to the specific production run shipped to the EU; or (b) that no net carbon cost was borne because the entity outperformed its target. In both cases, the documentation must be supported by BEE registry data, exchange transaction records and the ACVA-verified emissions report for the relevant compliance period.
The carbon price paid must be attributed specifically to the emissions embedded in the goods exported to the EU — not averaged across all production. This requires a traceable link between the specific CCC purchases (or zero net cost documentation), the verified emission intensity of the production facility, and the specific tonnage shipped to EU buyers. The methodology for this attribution is one of the questions the Commission’s August 2025 call for evidence was specifically designed to address.
The carbon price must be expressed in EUR per tonne of CO₂ equivalent. For CCC prices denominated in Indian rupees, a verified exchange rate conversion methodology must be applied. The Commission’s plan to publish default carbon prices in the CBAM registry from 2027 would standardise this step — using annual average CCC prices in India converted to EUR. Until then, actual prices must be documented and converted on a case-by-case basis.
The EU importer files the CBAM declaration by 30 September of the year following importation — so for 2026 imports, by 30 September 2027. The Article 9 deduction is claimed within this declaration, supported by all the documentation above. CBAM certificate sales start from 1 February 2027. The EU competent authority in the member state of importation reviews the claim and can request additional evidence. If accepted, the certificate obligation is reduced by the EUR equivalent of the Indian carbon price paid per tonne.
How India’s CCTS compares to what Article 9 is designed for
Article 9 was written primarily with systems like the EU ETS in mind — cap-and-trade markets with observable allowance prices and clear compliance transactions. India’s CCTS has a different architecture. Understanding where those differences create friction in the Article 9 process is important for every Indian exporter, their legal and compliance teams, and the trade associations representing CBAM-covered sectors.
| Dimension | EU ETS (Article 9 baseline) | India’s CCTS | Article 9 Implication |
|---|---|---|---|
| Market design | Cap-and-trade — absolute emission cap | Intensity-based baseline-and-credit | Complicates attribution |
| Carbon price signal | Observable daily allowance price on exchanges | CCC market price on power exchanges — from July 2026 | Verifiable once market starts |
| Coverage | Absolute tonnes of CO₂ across all production | GHG intensity per unit output — Scope 1 + Scope 2 | Attribution methodology needed |
| Outperformers | Sell surplus allowances — explicit revenue | Sell surplus CCCs — explicit revenue | Reduces or eliminates deduction |
| Under-performers | Buy allowances at market price — explicit cost | Buy CCCs at market price — explicit cost | Deductible once price is documented |
| Third-country default price | N/A — EU domestic | Commission to publish from 2027 in CBAM registry | Simplification from 2027 |
| Verification standard | EU ETS accredited verifiers | BEE-accredited ACVAs — EU equivalence not yet established | Requires MOU / recognition process |
The single most critical gap in the table is the last row — verification equivalence. For Article 9 deductions to be accepted smoothly by EU competent authorities, India needs to establish that its ACVA-verified emissions data meets the same standard as EU ETS-accredited verification. This is not a technical impossibility — India’s accreditation framework under BEE is modelled on international ISO standards. But it requires a formal bilateral recognition process between the EU and India, ideally structured as a Memorandum of Understanding between the European Commission and the Ministry of Power or BEE.
The December 2025 Commission proposal (COM 2025/989) notes that “Such recognition should be put forward by means of a Memorandum of Understanding.” This is the legal pathway for India to secure systematic recognition rather than case-by-case claims by individual exporters.
What India needs to do — a practical agenda
The window between now and the first CBAM declaration deadline in September 2027 is the critical period. For Indian exporters in steel, aluminium and fertilisers — the three sectors with the largest CBAM exposure — the actions required are both technical and diplomatic.
At the installation level — what individual companies must do
Every Indian producer exporting to the EU in a CBAM-covered sector should already have CBAM-compliant emissions data for calendar year 2026, because that data is required for the CBAM declaration regardless of any Article 9 claim. The additional step for Article 9 is linking that verified emissions data to the company’s CCTS compliance record — CCC purchases, BEE registry transactions, ACVA-verified intensity reports — in a traceable, documentable chain that EU competent authorities will recognise.
Practically, this means: working with both a CBAM-accredited EU verifier and a BEE-accredited ACVA to produce reconciled reports that speak the same language; maintaining production records that allow the CCC compliance cost to be attributed to specific batches of goods exported to the EU rather than averaged across total output; and briefing EU trading partners on the Article 9 claim process so that the CBAM declarant on the EU side is prepared to file the deduction in September 2027.
At the policy level — what India’s government must do
The bilateral diplomatic track is as important as the technical track. India needs formal recognition of its CCTS as a carbon pricing mechanism for Article 9 purposes — and that recognition flows through the EU-India trade and climate dialogue. The EU-India Strategic Agenda 2025 and the India-EU FTA concluded on 27 January 2026 provide the political infrastructure for this conversation. The technical content of the recognition discussion involves demonstrating that India’s CCTS meets the Article 9 definition of a “carbon emissions reduction scheme,” that CCC prices are verifiable and transparent on regulated exchanges, and that ACVA verification standards are equivalent to EU ETS accreditation standards.
India’s Ministry of Commerce, Ministry of Power, BEE and the office of India’s Sherpa to the G20 all have roles in this process. The Indian Carbon Market Portal, which launched in March 2026, is a significant step — it creates the digital infrastructure for the price transparency and transaction auditability that EU competent authorities will require. But portal launch is not the same as EU recognition, and the recognition process takes time.
The Commission publishes default carbon prices for third countries in the CBAM registry from 2027. If India’s CCTS CCC market is active and its price is verifiable by mid-2026, India has approximately six months to engage the Commission’s DG TAXUD on the data needed for that default price publication. That six-month window — roughly July to December 2026 — is when India’s diplomatic and technical engagement on CBAM-CCTS recognition needs to be most active. Missing that window means the first round of CBAM declarations in September 2027 proceeds without default pricing, requiring individual case-by-case claims by every Indian exporter — a significantly heavier administrative burden.
Sector-by-sector: what the deduction means financially
The financial significance of the Article 9 deduction varies by sector depending on the current gap between India’s effective carbon price through the CCTS and the EU ETS carbon price. As of early 2026, EU ETS allowances were trading at approximately €60 to €70 per tonne of CO₂ equivalent. India’s CCC market has not yet started trading — July 2026 is the expected launch. Initial CCC prices are difficult to project, but IEEFA and JMK Research estimate early market clearing prices in the range of Rs 200 to 400 per tonne (approximately €2.20 to €4.40 at current exchange rates).
This means that even with a fully recognised and operational CCTS, the Article 9 deduction would reduce India’s CBAM liability by only a fraction of the total in the early years — because the Indian carbon price is structurally lower than the EU ETS price, reflecting India’s different stage of economic development and the intensity-based rather than absolute-cap design. The deduction is important and should be pursued aggressively. But it is not a substitute for genuine decarbonisation investment — it is a partial offset that reduces the financial pain of the transition while that transition happens.
| Sector | CBAM levy — no deduction (estimated 2026, EU ETS ~€65/t) | CCTS offset (estimated, early market ~€3/t) | Net CBAM cost with deduction | Long-run direction |
|---|---|---|---|---|
| Steel (BF-BOF) | ~€50 to €75 per tonne of steel | ~€3 to €8 per tonne | ~€45 to €70 per tonne | CCTS tightens — gap narrows slowly |
| Aluminium | ~€15 to €25 per tonne (Scope 1 only, current rules) | ~€2 to €5 per tonne | ~€12 to €22 per tonne | Scope 2 expansion would raise levy substantially |
| Fertilisers (urea) | ~€7 to €16 per tonne of urea | ~€1 to €3 per tonne | ~€6 to €14 per tonne | Green ammonia route: zero CBAM, zero deduction needed |
The numbers above are illustrative estimates based on current EU ETS prices and expected early CCTS CCC market prices. They make one thing visually clear: the deduction is real but modest in the early years. The real prize is not the near-term deduction — it is the signal that a functioning, recognised Indian carbon market sends to the European Commission about India’s long-term decarbonisation trajectory, which in turn influences how EU trade and climate policy treats India over the coming decade.
The downstream product expansion — what is coming in 2028
One further dimension that Indian exporters should be tracking: the European Commission’s December 2025 legislative proposal (COM 2025/989) to extend CBAM to selected steel and aluminium-intensive downstream products from January 2028. This expansion would bring products like steel tubes, profiles, wire, fasteners and aluminium structures into CBAM scope — goods that currently sit outside the mechanism but are produced using CBAM-covered steel and aluminium as inputs.
For India’s engineering and fabricated metals exporters — who are currently outside CBAM entirely — this expansion creates a new compliance requirement from 2028. And it expands the population of Indian producers for whom the Article 9 deduction becomes relevant, because their inputs will have borne CCTS costs that, if properly documented through the supply chain, could potentially be attributed upstream.
The Commission’s review report also discusses a potential extension to cement, fertilisers and hydrogen downstream products in future legislative revisions — though no firm timeline has been set for those sectors. The direction of travel is clear: CBAM’s coverage is expanding, the Article 9 deduction framework is being refined, and the window to establish India’s position in that framework is the current one, not a future one.
Frequently Asked Questions
Does India’s CCTS automatically qualify for the Article 9 deduction?
Not automatically. The CBAM Regulation requires evidence that a carbon price was effectively paid in the country of origin. India’s CCTS is a qualifying type of scheme — a greenhouse gas emissions reduction framework with a market price — but individual claims still require documentation, and a formal recognition process between the EU and India is needed to streamline the deduction for all Indian exporters rather than requiring case-by-case proof.
If an Indian producer beats its CCTS target and earns CCCs, do they still get a CBAM deduction?
Not in the same way. Article 9 explicitly accounts for rebates and compensation, meaning CCC revenues earned from outperformance would reduce or eliminate the net carbon cost that can be deducted. An entity that earns more from CCC sales than it spent on compliance has a net zero or negative carbon cost — and therefore little or no deduction to claim. The deduction is most valuable for entities that are genuine carbon market compliance buyers.
When will the European Commission publish default carbon prices for India’s CCTS?
From 2027, the Commission can publish default carbon prices for third countries in the CBAM registry, using reliable publicly available information and data provided by those governments. Whether India’s CCTS price is included in the first round of default price publications in 2027 depends on how quickly the Indian Carbon Market Portal generates auditable, publicly available CCC price data and how actively India engages with DG TAXUD on this question.
What is the first deadline by which the Article 9 deduction can be claimed?
The first CBAM declaration covering 2026 imports must be filed by 30 September 2027. CBAM certificate sales open on 1 February 2027, covering 2026 import-year emissions, priced at the quarterly average of 2026 EU ETS allowance prices. Article 9 deductions are claimed within that declaration — so September 2027 is the first real deadline for Indian exporters and their EU trading partners to have the Article 9 documentation chain in place.
Does the CCTS cover the Scope 2 emissions that CBAM requires for fertilisers and cement?
Yes. India’s CCTS covers both Scope 1 direct and Scope 2 indirect electricity emissions under its gate-to-gate methodology — making it one of the few compliance carbon markets globally that explicitly prices indirect electricity emissions at the industrial consumer level. This alignment with CBAM’s full coverage scope for fertilisers and cement is a significant design advantage when constructing Article 9 claims, because the same emissions boundary is used in both calculations. See the CCTS explainer for the full Scope 1 and 2 coverage details.
What happens if India does not achieve CCTS recognition before the first CBAM declarations in 2027?
Indian exporters can still attempt to claim Article 9 deductions on a case-by-case basis, furnishing documentation directly to the EU competent authority in the relevant member state. This is significantly more burdensome than a systematic default price recognition. Each company must independently build the documentation chain described in this article. EU competent authorities have discretion over what evidence they accept, creating uncertainty. The result is that the full potential of the CCTS-CBAM offset goes unrealised in the early years, and the financial benefit that should remain in India partially escapes to EU member state treasuries instead.