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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. 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, and the conditions for claiming it are demanding. The gap between having a carbon market and having a formally recognised carbon market is exactly where India's strategic work now lies.
Key Takeaways
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 actively 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 readily recognise. An intensity-based credit scheme naturally creates different evidence challenges than a pure cap-and-trade system with an explicit allowance price.
Starting in 2027, the European Commission will publish default carbon prices for third countries within the CBAM registry. Until then, the actual prices paid must be clearly demonstrated on a case-by-case basis using documentation that EU competent authorities will accept.
CSEP estimates that the CBAM-CCTS offset deduction could help retain revenue equivalent to approximately 1% of India's GDP within India by 2030, rather than watching that revenue flow out to European member state treasuries. The strategic and fiscal stakes here are highly significant.
India's CCTS currently covers nine key sectors under an intensity-based baseline-and-credit design. For the Article 9 deduction to flow smoothly, the BEE and MoEFCC need to thoroughly build installation-level CCC price transparency right into the market's reporting infrastructure. This is a vital 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 primarily focuses on what obligated entities must do to comply with it. Similarly, most coverage of CBAM zeroes in 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 found in Article 9 of the CBAM Regulation, which determines whether Indian companies end up paying their carbon costs once or twice.
The principle itself is remarkably straightforward. CBAM exists to ensure that imports from non-EU countries face the same basic 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 entirely on top of that domestic payment would mean effectively pricing those exact same emissions twice. Article 9 actively prevents this by allowing the EU importer to deduct the carbon price already paid in the country of origin directly from the number of CBAM certificates they must surrender.
The strategic importance of this deduction for India simply cannot be overstated. CSEP has estimated that a highly effective CCTS-CBAM linkage could retain revenue equivalent to approximately 1% of India's GDP safely within the country. This is massive revenue that would otherwise easily flow to EU member state treasuries through mandatory CBAM certificate purchases. That is the stark difference between India's carbon pricing revenue staying right here in India to fund critical industrial transitions, and that exact same revenue being effortlessly captured by Brussels.
But claiming this deduction is far from automatic. It requires rigorously verified evidence, specific documentation that the EU will accept, and eventually, a formal recognition process that the Commission has unfortunately not yet completed. This article breaks down how Article 9 actually works, what the strict evidence requirements are, where the hidden complexity lies for an intensity-based scheme like India's CCTS, and precisely 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, including targets, sectors, baseline year, and 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 clearly states that an authorised CBAM declarant may formally claim a reduction in the number of CBAM certificates that need to be surrendered. This reduction aims to reflect the actual carbon price already paid in the country of origin for those declared embedded emissions. The provision specifically defines a "carbon price" as any monetary amount paid in a third country under a recognized carbon emissions reduction scheme, whether that takes the form of a tax, levy, fee, or emission allowances purchased under a greenhouse gas emissions trading system.
The CBAM Omnibus Simplification Regulation (EU) 2025/2083, which officially entered into force on 20 October 2025, thoughtfully added some highly important clarifications to this provision. Starting from 2027, the European Commission will determine and publicly make available within the CBAM registry default carbon prices for third countries where valid carbon pricing mechanisms are already in place. This will be done using reliable, publicly available information and data provided directly by those respective governments. This is the crucial pathway through which a fully recognised and well-documented carbon market like India's CCTS could eventually generate a standing default price that EU importers can use almost automatically.
However, until those specific default prices are firmly established, the actual carbon price paid must be clearly demonstrated on a strict case-by-case basis, armed with documentation sufficient to completely satisfy the competent authority within the EU member state handling the CBAM declaration. ICAP notes that the detailed implementing acts governing exactly how third-country deductions are calculated and documented are honestly still being finalised. The Commission launched an important call for evidence on this specific question in August 2025, with industry responses strongly informing the final delegated acts expected through 2026.
There is one very important clarification emerging from the Omnibus regulation: carbon prices actively paid in a third country other than the actual country of origin are perfectly eligible for deduction, provided the corresponding evidence can be robustly furnished. This deeply matters for highly complex supply chains where precursor goods routinely cross multiple borders long before any final processing takes place.
The critical CBAM deduction is officially claimed by the EU importer within their annual CBAM declaration, not directly by the Indian producer. This inherently means Indian exporters urgently need to furnish their EU importers with highly verified, installation-level emissions data and clear carbon price data in a tight format that EU competent authorities will readily accept. The heavy burden of documentation sits squarely and jointly between the Indian producer and the EU importer. If the necessary documentation is absent or deemed inadequate, the deduction simply cannot be claimed and the full CBAM cost stands.
How the deduction is calculated: the mechanics
The actual number of CBAM certificates that can be successfully deducted is carefully calculated by converting the domestic carbon price directly into EU ETS-equivalent terms. If an Indian steelmaker actively pays a carbon price of, say, Rs 500 per tonne of CO₂ equivalent through the CCTS, whether through directly purchasing Carbon Credit Certificates to cover a compliance shortfall or through the implicit cost inherently embedded in the intensity target itself, that precise cost must be accurately expressed as a per-tonne EUR figure. It is then safely deducted from the total CBAM certificate obligation for the corresponding emissions.
In a pure cap-and-trade system featuring an explicit allowance price, much like the EU ETS itself, this calculation is wonderfully straightforward. The exact price per tonne of CO₂ is clearly observable, well documented, and fully auditable. The main challenge with India's CCTS is that it operates as an intensity-based baseline-and-credit scheme, not a traditional cap-and-trade system. This naturally creates several tricky complications that are well worth examining carefully.
The intensity-based design challenge
In a modern intensity-based scheme like the CCTS, participating entities do not simply buy and surrender a fixed number of standard allowances for every single tonne they emit. Instead, they receive a very specific target measured in tCO₂e per unit of output. Entities that successfully beat their target earn valuable Carbon Credit Certificates that they can readily sell. Entities that sadly miss the target must buy CCCs to quickly cover their shortfall or face hefty penalties. The "carbon price" functioning in this system is therefore the fluctuating market price at which CCCs actively trade on Indian power exchanges, not a fixed administrative levy.
For an entity that successfully beats its target and heavily sells CCCs, the situation becomes beautifully nuanced. Their net carbon cost is actually negative because they received real revenue from the carbon market rather than paying into it. Article 9 explicitly accounts for all rebates and forms of compensation. It states that "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 strictly means that any CCC revenues earned by Indian producers would directly reduce or completely eliminate their Article 9 deduction claim for those specific emissions.
For an entity that misses its target and must grudgingly purchase CCCs, the exact cost of those CCCs essentially becomes their carbon price for Article 9 purposes. The final deduction amount per tonne of exported goods would then be carefully calculated by attributing that exact CCC purchase cost directly to the specific goods exported to the EU, leaning heavily on the verified emissions methodology already stringently required for standard CBAM reporting.
An Indian steel or aluminium producer that outperforms its tight CCTS target, thereby earning and selling CCCs, may unexpectedly have a net zero or near-zero carbon cost under Article 9. This happens because the sweet CCC revenue directly offsets any real compliance expenditure. For these high-performing producers, the CCTS does not magically reduce their CBAM liability in the straightforward way many might assume. The Article 9 deduction is strictly proportional to the net carbon cost actually borne, not simply to the abstract fact of being covered under a national carbon market. This is an incredibly critical nuance that Indian exporters and their EU trading partners absolutely need to understand long before the very first CBAM declarations are awkwardly filed in September 2027.
What the evidence requirements look like in practice
For an EU importer to successfully and smoothly claim an Article 9 deduction directly on behalf of an Indian producer, the following tight chain of clear documentation must fully exist and be perfectly verifiable:
The CBAM declaration strictly requires calculating embedded direct and indirect emissions per tonne of exported good. This is done using highly specific EU-specified methodology and must be verified by an accredited third-party verifier. This is the exact same emissions data that CBAM requires entirely regardless of any Article 9 claim. Indian producers absolutely must have this data regardless, but the pure quality of verification deeply matters. Only data rigorously verified to EU accreditation standards, or to standards the Commission officially recognises as equivalent, will be accepted.
The producer must robustly document what exact carbon price was effectively paid for the deeply embedded emissions inside the exported goods. For CCTS-covered entities, this practically means properly demonstrating either (a) the true cost of CCCs purchased specifically to cover a compliance shortfall, neatly attributed to the specific production run shipped out to the EU; or (b) proving that no net carbon cost was actually borne because the entity proudly outperformed its target. In both tricky cases, the documentation must be solidly supported by BEE registry data, official exchange transaction records, and the ACVA-verified emissions report exactly for the relevant compliance period.
The real carbon price successfully paid must be attributed specifically and clearly to the emissions perfectly embedded in the goods exported to the EU, and absolutely not averaged lazily across total overall production. This strictly requires a clean, traceable link directly between the specific CCC purchases (or the zero net cost documentation), the officially verified emission intensity of the production facility, and the specific tonnage cleanly shipped to EU buyers. The exact methodology for this complex attribution is one of the burning questions the Commission's August 2025 call for evidence was specifically designed to help address.
The final carbon price must be flawlessly expressed in EUR per tonne of CO₂ equivalent. For any CCC prices currently denominated in Indian rupees, a highly verified exchange rate conversion methodology must be confidently applied. The Commission's helpful plan to boldly publish default carbon prices directly in the CBAM registry from 2027 onward would thankfully standardise this painful step, likely using annual average CCC prices in India neatly converted to EUR. Until that happens, actual prices must be meticulously documented and converted on a strict case-by-case basis.
The EU importer officially files the CBAM declaration strictly by 30 September of the year following importation. So for 2026 imports, it is by 30 September 2027. The Article 9 deduction is actively claimed deep within this declaration, fully supported by all the rigorous documentation listed above. Keep in mind that CBAM certificate sales start running from 1 February 2027. The EU competent authority operating in the member state of importation reviews the complex claim and can easily request additional evidence if desired. If finally accepted, the certificate obligation is happily reduced by the EUR equivalent of the exact Indian carbon price paid per tonne.
How India's CCTS compares to what Article 9 is designed for
Article 9 was originally written primarily with simple systems like the EU ETS fully in mind: basic cap-and-trade markets bursting with observable allowance prices and perfectly clear compliance transactions. India's CCTS deliberately features a remarkably different architecture. Understanding exactly where those key differences create painful friction in the Article 9 process is incredibly important for every single Indian exporter, their legal and compliance teams, and the diverse trade associations heavily 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 screaming out from the table is the very last row: verification equivalence. For Article 9 deductions to be smoothly and consistently accepted by skeptical EU competent authorities, India absolutely needs to establish that its ACVA-verified emissions data perfectly meets the exact same high standard as EU ETS-accredited verification. This is not a frustrating technical impossibility, as India's accreditation framework functioning under the BEE is already heavily modelled on robust international ISO standards. But achieving this seamlessly requires a formal, high-level bilateral recognition process between the EU and India, ideally carefully structured as a solid Memorandum of Understanding between the European Commission and either the Ministry of Power or the BEE.
The December 2025 Commission proposal (COM 2025/989) helpfully notes that "Such recognition should be put forward by means of a Memorandum of Understanding." This is the clear legal pathway for India to firmly secure systematic recognition rather than relying on endless, painful case-by-case claims by exhausted individual exporters.
What India needs to do: a practical agenda
The narrowing window running between now and the very first CBAM declaration deadline in September 2027 is the absolute critical period. For ambitious Indian exporters working in steel, aluminium, and fertilisers, which are the three massive sectors with the largest CBAM exposure, the actions required are deeply technical but also highly diplomatic.
At the installation level: what individual companies must do
Every serious Indian producer actively exporting to the EU in a CBAM-covered sector should already possess CBAM-compliant emissions data perfectly ready for calendar year 2026. This data is rigorously required for the CBAM declaration regardless of any potential Article 9 claim. The tricky additional step just for Article 9 is flawlessly linking that highly verified emissions data directly to the company's CCTS compliance record (including CCC purchases, BEE registry transactions, and ACVA-verified intensity reports) in a clean, traceable, and fully documentable chain that strict EU competent authorities will easily recognise.
Practically speaking, this means actively working alongside both a CBAM-accredited EU verifier and a BEE-accredited ACVA to cleanly produce completely reconciled reports that comfortably speak the exact same language. It also means maintaining flawless production records that allow the exact CCC compliance cost to be cleanly attributed specifically to batches of goods exported to the EU, rather than wildly averaged across total plant output. Furthermore, it requires thoroughly briefing your EU trading partners directly on the Article 9 claim process so that the CBAM declarant operating on the EU side is completely prepared to effortlessly file the deduction when September 2027 arrives.
At the policy level: what India's government must do
The bilateral diplomatic track here is just as critically important as the technical track. India urgently needs formal, high-level recognition of its CCTS as a legitimate carbon pricing mechanism specifically for Article 9 purposes, and that recognition flows naturally right through the ongoing EU-India trade and climate dialogue. The EU-India Strategic Agenda 2025 and the ambitious India-EU FTA finally concluded on 27 January 2026 happily provide the necessary political infrastructure for this vital conversation. The technical meat of the recognition discussion naturally involves solidly demonstrating that India's CCTS completely meets the Article 9 definition of a genuine "carbon emissions reduction scheme," that all CCC prices are beautifully verifiable and wonderfully transparent on properly regulated exchanges, and that ACVA verification standards are functionally equivalent to high EU ETS accreditation standards.
India's Ministry of Commerce, Ministry of Power, the BEE, and the bustling office of India's Sherpa to the G20 all have incredibly vital roles in managing this complex process. The sleek Indian Carbon Market Portal, which launched in March 2026, is a genuinely significant step as it creates the digital infrastructure needed for the deep price transparency and transaction auditability that EU competent authorities will absolutely require. But simply launching a portal is definitely not the same as achieving full EU recognition, and the slow recognition process takes real time.
The Commission starts publishing helpful default carbon prices for third countries directly in the CBAM registry from 2027. If India's CCTS CCC market is beautifully active and its pricing is highly verifiable by mid-2026, India effectively has approximately six months to actively engage the Commission's DG TAXUD, providing all the solid data needed for that default price publication. That short six-month window, running roughly from July to December 2026, is exactly when India's diplomatic and technical engagement regarding CBAM-CCTS recognition needs to be the absolute most active. Missing that precious window means the stressful first round of CBAM declarations in September 2027 will painfully proceed without any default pricing. This will awkwardly require individual, messy case-by-case claims by every single Indian exporter, resulting in a significantly heavier administrative burden.
Sector-by-sector: what the deduction means financially
The ultimate financial significance of the Article 9 deduction varies wildly by sector, depending entirely on the current gaping gap between India's effective carbon price running through the CCTS and the hefty EU ETS carbon price. As of early 2026, EU ETS allowances were aggressively trading at approximately €60 to €70 per tonne of CO₂ equivalent. Meanwhile, India's CCC market has not quite started trading yet, with July 2026 being the expected launch date. Initial CCC prices remain difficult to confidently project, but IEEFA and JMK Research smartly estimate early market clearing prices hovering somewhere in the range of Rs 200 to 400 per tonne (which is approximately €2.20 to €4.40 at current exchange rates).
This unfortunately means that even with a fully recognised and perfectly operational CCTS, the Article 9 deduction would successfully reduce India's CBAM liability by only small fractions of the total in the early years. This is because the Indian carbon price is structurally much lower than the EU ETS price, directly reflecting India's different stage of broader economic development and the unique intensity-based, rather than absolute-cap, market design. The deduction is certainly important and should be pursued aggressively by everyone involved. But it is definitely not a magical substitute for genuine decarbonisation investment. It is a partial offset carefully designed to reduce the immediate financial pain of the green transition while that massive transition steadily 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 mapped out above are purely illustrative estimates based on current EU ETS prices and highly expected early CCTS CCC market prices. However, they make one vital thing visually clear: the deduction is very real but quite modest in the early years. The real prize is not the neat near-term deduction. Rather, it is the strong signal that a functioning, fully recognised Indian carbon market clearly sends directly to the European Commission regarding India's serious, long-term decarbonisation trajectory. This, in turn, deeply influences exactly how sweeping EU trade and climate policy ultimately treats India over the coming decade.
The downstream product expansion: what is coming in 2028
There is one further massive dimension that sharp Indian exporters really should be closely tracking: the European Commission's bold December 2025 legislative proposal (COM 2025/989). This explicitly aims to seamlessly extend CBAM to carefully selected steel and aluminium-intensive downstream products starting fresh from January 2028. This rapid expansion would finally bring complex products like steel tubes, industrial profiles, wire, advanced fasteners, and large aluminium structures cleanly into the CBAM scope. These are highly valuable goods that currently sit happily outside the mechanism but are aggressively produced using CBAM-covered steel and aluminium as core inputs.
For India's massive engineering and fabricated metals exporters, who currently operate blissfully outside CBAM entirely, this expansion creates a sudden, heavy new compliance requirement beginning in 2028. Naturally, it also wildly expands the overall population of Indian producers for whom the tricky Article 9 deduction suddenly becomes deeply relevant, because their raw inputs will have successfully borne CCTS costs that, if properly and cleanly documented straight through the supply chain, could potentially be successfully attributed back upstream.
The Commission's deep review report also actively discusses a potential, sweeping extension specifically to cement, fertilisers, and even hydrogen downstream products securely in future legislative revisions, though no firm timeline has been formally set for those sectors just yet. The general direction of travel is painfully clear: CBAM's coverage is rapidly and methodically expanding, the intricate Article 9 deduction framework is being constantly refined, and the golden window to perfectly establish India's firm position within that rigid framework is the current one, not some imaginary future one.
Frequently Asked Questions
Does India's CCTS automatically qualify for the Article 9 deduction?
Not automatically. The CBAM Regulation clearly requires solid evidence that a real carbon price was effectively paid in the country of origin. India's CCTS is technically a qualifying type of scheme (a greenhouse gas emissions reduction framework complete with a market price), but individual claims still require heavy documentation. Furthermore, a formal recognition process between the EU and India is deeply needed to streamline these deductions for all Indian exporters rather than painfully 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 straightforward way. Article 9 explicitly and carefully accounts for all rebates and compensation, beautifully meaning that CCC revenues resulting from outperformance directly reduce or completely eliminate the net carbon cost that can actually be deducted. An entity that earns more from swift CCC sales than it spent on basic compliance has a net zero or even negative carbon cost, and therefore holds little or no deduction to reasonably claim. The deduction is ultimately most valuable for entities that act as genuine carbon market compliance buyers.
When will the European Commission publish default carbon prices for India's CCTS?
Starting from 2027 under the new CBAM Simplification Regulation (EU 2025/2083), the Commission can start publishing default carbon prices for third countries directly in the CBAM registry, safely using reliable publicly available information and valid data provided directly by those governments. Whether India's CCTS price is happily included in the very first round of default price publications in 2027 depends entirely on how quickly the Indian Carbon Market Portal generates beautifully auditable, publicly available CCC price data, and exactly how actively India politely engages with DG TAXUD on this vital question.
What is the first deadline by which the Article 9 deduction can be claimed?
The very first CBAM declaration cleanly covering 2026 imports must legally be filed by 30 September 2027. CBAM certificate sales officially open on 1 February 2027, covering those 2026 import-year emissions, accurately priced at the quarterly average of 2026 EU ETS allowance prices. Article 9 deductions are actively claimed deep within that declaration, so September 2027 serves as the first real deadline for Indian exporters and their EU trading partners to have the required Article 9 documentation chain perfectly in place.
Does the CCTS cover the Scope 2 emissions that CBAM requires for fertilisers and cement?
Yes. India's robust CCTS broadly covers both Scope 1 direct emissions and Scope 2 indirect electricity emissions securely under its gate-to-gate methodology. This beautifully makes it one of the very few compliance carbon markets globally that explicitly and smartly prices indirect electricity emissions straight at the industrial consumer level. This clean alignment with CBAM's full coverage scope specifically for fertilisers and cement is a wonderful design advantage when aggressively constructing Article 9 claims because the exact same emissions boundary is seamlessly used in both complex 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 definitely still attempt to heavily claim Article 9 deductions on a messy case-by-case basis, directly furnishing bulky documentation straight to the EU competent authority situated in the relevant member state. However, this is significantly more burdensome than securing a systematic default price recognition. Each individual company must independently and painstakingly build the documentation chain perfectly described in this article. EU competent authorities hold vast discretion over exactly what evidence they happily accept, creating deep uncertainty. The sad result is that the full, rich potential of the CCTS-CBAM offset goes largely unrealised in the difficult early years, and the massive financial benefit that should rightly remain in India partially escapes safely to EU member state treasuries instead.