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CBAM · CCTS · Trade PolicyThe CCTS to CBAM Deduction: What Article 9 Promises Indian Exporters and Why the Upcoming EU Decision Matters Most
Under Article 9 of the CBAM Regulation, European importers can legally reduce their carbon border tax by the carbon price already paid in the producing country. Following the EU and India Strategic Agenda adopted in September 2025, the EU officially committed to deducting carbon prices paid in India directly from CBAM adjustments, naming the CCTS specifically. The EU Commission's December 2025 review confirmed that prices paid under different compliance schemes count. However, the specific implementing act detailing exactly how these third-country carbon prices are recognized is still pending in 2026. A major hurdle remains: India's intensity-based CCTS does not align perfectly with the EU's absolute-cap ETS, creating real uncertainty about how Indian CCC payments will be treated. If they are recognized, a modern steel plant exporting 500,000 tonnes to the EU could slash its annual CBAM cost by roughly Rs 747 crore. If ignored, the full CBAM penalty applies. This guide breaks down the legal mechanism, quantifies the massive deduction value, explains the core incompatibility issue, and outlines exactly what Indian exporters need to do right now to prepare.
Article 9 of the CBAM Regulation ensures that the number of CBAM certificates an EU importer surrenders is reduced to reflect the carbon price effectively paid in the country of origin. This carbon price must be paid as a tax, levy, fee, or emission allowance under a recognized scheme. The reduction is calculated per tonne of CO₂e embedded in the imported goods. The implementing act specifying exactly how these third-country prices are recognized was expected in late 2025 but remains pending as of April 2026. The Commission's call for evidence in August 2025 confirmed that the deduction framework is a live policy process.
The EU and India Strategic Agenda from September 2025 is the diplomatic breakthrough giving Indian exporters the strongest proof that CCTS recognition is coming. The Agenda explicitly commits the EU to deducting carbon prices effectively paid in India from CBAM financial adjustments. While this is a high-level political commitment rather than a technical act, it signals the direction the final legislation will take. No other emerging economy has secured an equivalent bilateral commitment at this level. India's proactive CCTS implementation has placed it well ahead of competitors like Turkey and Indonesia.
The fundamental incompatibility between CCTS and the EU ETS is the central problem the upcoming implementing act must resolve. The EU ETS imposes absolute emission caps with auctioned allowances, meaning every tonne of CO₂ emitted costs a specific amount. The CCTS is an intensity-based system where entities only pay for emissions when they miss their GEI target. Entities that meet their target pay nothing and may earn CCCs to sell. The EU Commission must develop a methodology to translate India's GEI-based compliance costs into a per-tonne deductible equivalent.
The deduction value is massive if the CCTS is fully recognized. Consider a steel exporter running at 2.0 tCO₂ per tonne with a CCTS Phase 1 CCC price of Rs 800. The deductible carbon price paid sits around €8.3. The CBAM obligation at a verified 2.0 tCO₂ per tonne is roughly €32.2. The Article 9 deduction would bring the net CBAM cost down to €15.6 per tonne, or roughly Rs 1,404. On 500,000 tonnes of exports, the net CBAM cost is Rs 702 crore versus Rs 1,449 crore without the deduction, saving Rs 747 crore per year. This applies to 2026 exports whose CBAM declaration is due May 31, 2027.
The documentation Indian exporters must prepare right now is the same documentation required for standard CBAM compliance. ACVA-verified GEI data, Form A submissions to the BEE, and the verified embedded emissions report are all mandatory whether or not a deduction applies. The only additional documentation required to claim an Article 9 deduction will be the CCC purchase records and official Indian government certification of the CCTS carbon price. Every compliant entity that has built its MRV infrastructure is pre-positioned to claim the deduction the moment the implementing act goes live.
The Article 9 Mechanism: How the Deduction Works
Article 9 of the CBAM Regulation clearly establishes that the number of CBAM certificates an EU importer must surrender should be reduced to account for the carbon price paid by the producer in their home country. This deduction is not automatic. It requires the EU importer to provide verified documentation proving that a carbon price was effectively paid. The European Commission is responsible for outlining exactly which third-country pricing schemes are eligible and how their prices translate into per-tonne deductions.
Regulation (EU) 2023/956 provides that the number of CBAM certificates surrendered shall be reduced to account for the carbon price effectively paid in the country of origin. The carbon price must be applied under a recognized carbon reduction scheme. The Omnibus Regulation effective October 2025 confirmed that carbon prices paid in transit countries are also eligible.
The Strategic Agenda contains an explicit commitment by the EU to deduct carbon prices effectively paid in India from CBAM financial adjustments. The EU Commission's December 2025 review acknowledged that prices paid under intensity-based schemes like India's CCTS can be deducted, cementing the policy direction.
The Commission launched a call for evidence in August 2025 specifically on the rules for deducting third-country carbon prices. The implementing act governing this deduction was expected in late 2025 but remained pending as of April 2026. Because the CBAM declaration for 2026 imports is due May 31, 2027, the implementing act must be finalized before that date.
Once the implementing act is active, the EU-authorized importer submits the annual CBAM declaration. This includes verified embedded emissions, the carbon price paid in India, supporting documentation from the Indian producer confirming CCC purchase, and verification by an EU-accredited independent verifier.
The Incompatibility Problem: Why CCTS and CBAM Do Not Map Cleanly
The EU ETS imposes a per-tonne cost on every single tonne of CO₂ emitted by a covered European producer. An EU steel plant emitting 2.0 tCO₂ per tonne of steel pays for every one of those two tonnes through allowance purchases. CBAM mirrors this model, charging the EU importer for the embedded emissions at the EU ETS carbon price, and then offering an adjustment for domestic carbon prices. The goal is to ensure the third-country producer faces an equivalent carbon cost.
India's CCTS does not work this way. A steel plant that meets its CCTS target pays absolutely nothing for the tonnes it emits, and might actually earn certificates to sell. A plant that misses the target pays Rs 800 per certificate only for the shortfall, not for the entire volume of embedded emissions. This structural difference creates a headache for Article 9, which assumes a flat carbon price applied across all emissions. The EU Commission must figure out how to translate India's unique compliance costs into a per-tonne equivalent.
The EU Commission realistically has three options for translating India's CCTS into a deductible price. Option 1: Zero deduction for outperformers, partial for underperformers. Only entities that purchased CCCs to cover shortfalls get a deduction. This would deliver the smallest deduction and perversely penalize the cleanest Indian producers. Option 2: Average CCTS carbon price applied to all embedded emissions. The Commission establishes an average CCTS carbon price for India and applies it as a deduction against all embedded emissions. This is simpler, more commercially significant, and aligned with the EU-India Strategic Agenda. Option 3: Recognition of India's CCTS as an equivalent system. The Commission formally recognizes the CCTS as sufficiently equivalent to the EU ETS and develops a bilateral offset mechanism. Option 1 would essentially nullify the deduction for clean Indian producers, a move highly inconsistent with the spirit of the Strategic Agenda.
The Financial Value: What CCTS Recognition is Worth in Rupees
The financial stakes are massive. The table below quantifies the CBAM deduction value for Indian exporters across two scenarios. Scenario A features an average Indian plant at 2.36 tCO₂ per tonne. Scenario B features a modern, upgraded plant at 2.0 tCO₂ per tonne. We examine both Option 1 (costs applied only to shortfalls) and Option 2 (average price applied to all emissions). We assume an EU ETS price of €65 and a CCC price of Rs 800.
The table reveals the glaring commercial paradox embedded in Option 1. The most efficient, highly upgraded Indian steel producer receives zero Article 9 deduction under Option 1 simply because it was clean enough to avoid CCTS penalties. Meanwhile, a dirtier plant buying shortfall certificates receives a small deduction. This outcome punishes decarbonization. The EU Commission must recognize this flaw and adopt Option 2 or Option 3 for the deduction to function logically.
Sector Comparisons: Steel, Aluminium, and Fertilisers
| Sector / Product Profile | Verified GEI | CBAM Cost (No Deduction) | Option 2 Deduction Value | Net CBAM After Option 2 | Saving on 100,000 t Exports |
|---|---|---|---|---|---|
| Steel: India Average (Verified) | 2.36 tCO₂/t | Rs 5,338/t | Rs 1,891/t | Rs 3,446/t | Rs 189 Crore/Year |
| Steel: BAT-Upgraded (Verified) | 2.0 tCO₂/t | Rs 3,091/t | Rs 1,603/t | Rs 1,488/t | Rs 160 Crore/Year |
| Steel: Default (Unverified) | 4.752 tCO₂/t | Rs 20,544/t | Not Available | Full Default Penalty | No Saving Possible |
| Aluminium: 40% RE Blend | ~9.5 tCO₂/t | Complex Calculation | ~€79/t Indicative | Substantially Reduced | Significant Savings |
| Fertilisers: Ammonia (Gas-Based) | ~1.6-2.0 tCO₂/t | Depends on EU Benchmark | Pending Finalization | Pending Implementation | Pending Methodology |
Action Plan: What Indian Exporters Need to Do Today
While the implementing act is pending, the actual CBAM obligations for 2026 imports are already active. Every Indian exporter shipping steel, aluminium, or fertilisers to the EU has been generating CBAM-relevant embedded emissions since January 1, 2026. The first annual declaration covering these emissions is due by May 31, 2027. If the deduction is confirmed, it will be claimed in that exact declaration. Exporters must prepare right now.
The Article 9 deduction requires documented proof that a carbon price was paid on verified emissions. Without ACVA-verified GEI data, neither the CBAM calculation nor the CCTS deduction can be claimed. The Form A submission due in July 2026 is simultaneously your CCTS compliance document and the foundation for your CBAM claim.
Whether the EU adopts Option 1 or Option 2, you need an ironclad paper trail. You must retain CCC purchase receipts from exchanges and official confirmation of applicable CCTS carbon prices. Keep all CCTS compliance records meticulously organized.
The CBAM declaration is filed by the EU-authorized importer, not the Indian exporter. You must coordinate with them immediately to ensure the CCTS deduction claim is built into their declaration process. They need to understand the Indian system and accept your verified data well before April 2027.
Keep track of the EU Taxation and Customs Union website for updates on the implementing act. When it lands in late 2026, it will lock in the exact methodology you must follow to claim the deduction in the upcoming May 2027 declaration.
Frequently Asked Questions
What is the Article 9 CBAM deduction and how does it apply to India's CCTS?
Article 9 of the CBAM Regulation reduces the certificates an EU importer must surrender by the carbon price effectively paid by the producer in the country of origin. The EU and India Strategic Agenda explicitly commits the EU to deducting CCTS carbon prices from CBAM adjustments. However, the exact implementing act dictating how this will work technically is still pending and expected in late 2026 or early 2027.
Why does India's CCTS create a problem for the CBAM Article 9 deduction?
CBAM deducts a per-tonne carbon price based on all embedded emissions. The CCTS is intensity-based, meaning facilities only pay a carbon cost on the shortfall tonnes above their specific target. The EU Commission has to decide whether to only recognize actual CCC payments, which unfairly excludes the cleanest producers, or to apply an average CCTS price across all emissions, which aligns better with diplomatic agreements.
What should Indian steel exporters do right now to prepare for the deduction?
First, establish ACVA-verified GEI data. Without it, no deduction can be claimed. Second, meticulously maintain all CCC purchase records and outperformance documentation. Third, engage your EU-authorized importer immediately to include the CCTS deduction in their May 2027 CBAM declaration planning. Finally, monitor the EU Commission's publication of the upcoming implementing act.
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