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CBAM · CCTS · Trade PolicyThe CCTS-CBAM Deduction: What Article 9 Promises Indian Exporters, Why the EU-India Strategic Agenda of September 2025 Was a Breakthrough, and Why the Implementing Act Still Pending in 2026 Is the Most Commercially Important EU Decision for Indian Industry This Decade
Article 9 of the CBAM Regulation (EU) 2023/956 permits EU importers to reduce their CBAM certificate obligations by the carbon price already paid in the country of production. Under the EU-India Strategic Agenda adopted in September 2025, the EU explicitly committed to deducting carbon prices effectively paid in India from CBAM financial adjustments — naming the CCTS directly. The EU Commission’s December 2025 review confirmed that carbon prices paid under different compliance schemes can be deducted. But the implementing act governing exactly how third-country carbon prices are recognised has not yet been finalised — it is expected in 2026 to 2027 — and a fundamental structural incompatibility between India’s intensity-based CCTS and the EU’s absolute-cap ETS creates genuine uncertainty about whether and how Indian CCC payments will be accepted as eligible deductions. If recognised: a BAT-upgraded steel plant at 2.0 tCO₂/t exporting 500,000 tonnes to the EU could reduce its annual CBAM cost by approximately Rs 747 crore. If not recognised: the full CBAM certificate cost applies with no domestic carbon price offset. This article maps the legal mechanism, quantifies the deduction value across sectors and GEI scenarios, explains the incompatibility problem that BEE and the EU Commission must resolve, and sets out exactly what Indian exporters must do right now to be positioned to claim the deduction the moment the implementing act lands.
Article 9 of the CBAM Regulation provides that the number of CBAM certificates required to be surrendered by an EU importer shall be reduced to reflect the carbon price effectively paid in the country of production for the declared embedded emissions. The carbon price must be paid in the form of a tax, levy, fee, or emission allowance applied to emissions from production under a recognised carbon reduction scheme. The reduction is calculated per tonne of CO₂e embedded in the imported goods. The implementing act specifying exactly how third-country carbon prices are recognised — including whether India’s CCTS qualifies — was expected in late 2025 but remained pending as of April 2026. The Commission’s call for evidence (August 28, 2025) and the December 2025 review both confirmed that the deduction framework is a live and active policy process.
The EU-India Strategic Agenda, adopted in September 2025, is the diplomatic breakthrough that gives Indian exporters the strongest available evidence that CCTS recognition is coming. The Strategic Agenda explicitly commits the EU to deducting carbon prices effectively paid in India from CBAM financial adjustments. This is a high-level political commitment from the EU side — not a technical implementing act — but it signals the political direction that the implementing act will follow. No other emerging economy has secured an equivalent bilateral commitment at this level of specificity. India’s active CCTS implementation and its September 2025 engagement with the EU have positioned it ahead of Turkey, Indonesia, and other competing exporters in the queue for Article 9 recognition.
The fundamental incompatibility between CCTS and the EU ETS is the central technical problem that the implementing act must resolve. The EU ETS imposes absolute emission caps with auctioned allowances — every tonne of CO₂ emitted by an EU producer costs a specific amount in allowances purchased. The CCTS is an intensity-based baseline-and-credit system — entities only pay for emissions when they miss their GEI target (by purchasing CCCs); entities that meet or beat their target pay nothing and may earn CCCs to sell. This means the CCTS does not impose a per-tonne carbon price on all embedded emissions — it imposes a carbon cost only on the shortfall tCO₂e above the GEI target. The Article 9 deduction, as currently designed, is calculated per tonne of embedded emissions — which does not map cleanly onto a system where the carbon cost applies only to shortfall tonnes. 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 very large if CCTS is recognised. For a steel exporter running at 2.0 tCO₂/t (after BAT upgrades) with a CCTS Phase 1 CCC price of Rs 800 per tCO₂e: the deductible carbon price paid is approximately €8.3 per tCO₂e (Rs 800 at Rs 84/EUR 90). The CBAM certificate obligation at verified 2.0 tCO₂/t (minus the 1.504 tCO₂/t EU ETS benchmark) is €32.2/t of steel. The Article 9 deduction at €8.3/tCO₂ × 2.0 tCO₂/t = €16.6/t. Net CBAM after deduction: €32.2 – €16.6 = €15.6/t = approximately Rs 1,404/t. On 500,000 tonnes of EU exports: net CBAM = Rs 702 crore versus Rs 1,449 crore without deduction — a saving of Rs 747 crore per year. This is not a theoretical future saving. It is the financial consequence of the implementing act’s outcome, applying to 2026 exports whose CBAM declaration is due May 31, 2027.
The documentation that Indian exporters must prepare now — before the implementing act is finalised — is the same documentation required for CBAM compliance regardless of whether the deduction is claimed. ACVA-verified GEI data under CCTS, Form A submission to BEE, and the verified embedded emissions report for the EU importer are all required whether or not a deduction applies. The marginal additional documentation required to claim an Article 9 deduction, once the implementing act specifies it, will be primarily the CCC purchase records and any official Indian government certification of the CCTS carbon price. Every CCTS-compliant entity that has already built its MRV infrastructure is pre-positioned to claim the deduction at zero additional compliance cost the moment the implementing act confirms eligibility.
The Article 9 mechanism — how the deduction works and what it requires
Article 9 of the CBAM Regulation establishes that the number of CBAM certificates an EU importer must surrender is reduced to account for the carbon price paid by the producer in the country of origin. The deduction is not automatic — it requires the EU importer to demonstrate, through verified documentation, that a carbon price was effectively paid by the producer on the embedded emissions of the imported goods. The Commission is responsible for establishing, through implementing and delegated acts, the methodology for calculating the deduction — including which third-country carbon pricing schemes are eligible and how their prices are translated into per-tonne-CO₂ deductible amounts.
Regulation (EU) 2023/956 Article 9 provides: the number of CBAM certificates to be 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 recognised carbon reduction scheme — a tax, levy, fee, or emission allowance. The Omnibus Regulation (EU) 2025/2083, effective October 20, 2025, confirmed that carbon prices paid in a third country other than the country of origin are also eligible — relevant for supply chains where materials transit through a third country.
The EU-India Strategic Agenda, adopted in September 2025, 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 of CBAM implementation acknowledged that carbon prices paid under different compliance schemes — including intensity-based schemes like India’s CCTS — can be deducted. This bilateral political commitment is the strongest available signal from the EU side that CCTS recognition is a policy direction, even though the implementing act has not yet been finalised.
The Commission launched a call for evidence on August 28, 2025 specifically on the rules for deduction of carbon prices paid in third countries. The implementing act governing this deduction — including eligible scheme types, price calculation methodology, and documentation requirements — was expected in late 2025 but remained pending as of April 2026. The Commission confirmed that remaining implementing acts on third-country carbon price recognition are expected throughout 2026 to 2027. The CBAM declaration for 2026 imports is due May 31, 2027 — meaning the implementing act must be finalised before that date for the deduction to be claimed on 2026 EU exports.
Once the implementing act is in force, the EU-authorised declarant (the EU importer) submits the annual CBAM declaration including: verified embedded emissions per tonne of product; the carbon price paid in India under CCTS; supporting documentation from the Indian producer confirming CCC purchase or GEI outperformance; and verification by an EU-accredited independent verifier. The Commission may also establish default carbon prices for countries with recognised carbon pricing mechanisms — potentially allowing Indian producers to use a standard India CCTS carbon price rather than providing plant-specific CCC transaction records.
The incompatibility problem — why CCTS and CBAM do not map cleanly
The EU ETS imposes a per-tonne cost on every tonne of CO₂ emitted by a covered EU producer. An EU steel plant emitting 2.0 tCO₂/t of steel pays for every one of those 2.0 tonnes through allowance purchases. CBAM mirrors this — it charges the EU importer for the embedded emissions in imported goods at the EU ETS carbon price, with an adjustment for any domestic carbon price paid by the third-country producer. The deduction is supposed to ensure that the third-country producer faces an equivalent carbon cost to the EU ETS.
India’s CCTS does not work this way. A steel plant at 2.0 tCO₂/t that meets its CCTS Phase 1 target of 2.27 tCO₂/t pays nothing for the 2.0 tonnes it emits — it actually earns CCCs to sell. A steel plant at 2.4 tCO₂/t that misses the target pays Rs 800/CCC for the 0.13 tCO₂/t shortfall only — approximately Rs 104 per tonne of steel. The CCTS does not impose a carbon cost on all 2.4 tonnes of embedded emissions — only on the 0.13 tonnes above the target. This is structurally different from what Article 9 envisages: a carbon price paid on the embedded emissions, deductible from the CBAM obligation on those same embedded emissions.
The EU Commission has three realistic methodological options for translating India’s CCTS into an Article 9-deductible per-tonne price. Option 1 — Zero deduction for outperformers, partial deduction for underperformers: Only entities that purchased CCCs to cover shortfalls have “effectively paid” a carbon price. Their deduction is the CCC purchase cost divided by the shortfall tonnes — not by total embedded emissions. This would deliver the smallest deduction (since outperforming plants pay nothing) and would perversely penalise the cleanest Indian producers in CBAM terms. Option 2 — Average CCTS carbon price applied to all embedded emissions: The Commission establishes an average or standard CCTS carbon price for India (for example, the weighted average CCC price of Rs 800 per tCO₂e, converted to €/tCO₂e at the applicable exchange rate) and applies it as a deduction against all embedded emissions in the CBAM declaration. This is simpler, more commercially significant, and more aligned with the EU-India Strategic Agenda’s spirit. Option 3 — Recognition of India’s CCTS as an equivalent system with bilateral offsetting: The Commission formally recognises India’s CCTS as sufficiently equivalent to the EU ETS for CBAM purposes and develops a bilateral offset mechanism. This is the most ambitious and most commercially valuable outcome for India — but also the most politically and technically complex to negotiate. The September 2025 Strategic Agenda points toward Option 2 or Option 3 as the policy direction. Option 1 would effectively nullify the deduction for the cleanest Indian producers — an outcome inconsistent with the Strategic Agenda’s stated objective.
The deduction value — what CCTS recognition is worth in rupees
The financial stakes are very large. The table below quantifies the CBAM deduction value for Indian exporters across four scenarios — two GEI levels (India average at 2.36 tCO₂/t and BAT-upgraded at 2.0 tCO₂/t) and two approaches to the deduction (Option 2 average price applied to all embedded emissions, and Option 1 cost applied only to shortfall emissions). The EU ETS price is assumed at €65/tCO₂ and the CCC price at Rs 800/tCO₂e = approximately €8.33/tCO₂e (at Rs 96/EUR).
The table reveals the commercial paradox at the heart of Option 1: a BAT-upgraded steel plant that is a CCTS outperformer — the cleanest, most efficient, most carbon-compliant Indian steel producer — receives zero Article 9 deduction under Option 1 because it has paid nothing for its carbon under CCTS. Meanwhile, a less efficient plant that is a CCTS shortfall buyer receives a small deduction. This outcome is the opposite of what the EU-India Strategic Agenda’s stated objective — to reward Indian producers who have invested in decarbonisation — requires. The EU Commission must recognise this and adopt an Option 2 or Option 3 approach for the deduction to function as intended.
The sector-by-sector deduction value — steel, aluminium, and fertilisers compared
| Sector / product | Verified GEI (tCO₂/t) | CBAM cost without deduction (€/t at €65) | Deduction value — Option 2 (all embedded, €8.33/tCO₂) | Net CBAM after Option 2 deduction | Saving on 100,000 t EU exports (Rs crore/year) |
|---|---|---|---|---|---|
| Steel — India average (unupgraded, verified) | 2.36 | €55.6/t (Rs 5,338/t) | €19.7/t (Rs 1,891/t) | €35.9/t (Rs 3,446/t) | Rs 189 crore/year |
| Steel — BAT-upgraded (2.0 tCO₂/t, verified) | 2.0 | €32.2/t (Rs 3,091/t) | €16.7/t (Rs 1,603/t) | €15.5/t (Rs 1,488/t) | Rs 160 crore/year |
| Steel — default (unverified) | 4.752 (EU default) | €214/t (Rs 20,544/t) | Deduction not available without verified data | €214/t (full default penalty) | No saving possible without MRV |
| Aluminium — smelter with 40% RE (verified) | ~9.5 (partially RE-powered) | Complex (Scope 1 + Scope 2 embedded) — indicative | ~€79/t indicative | Substantially reduced vs unverified | Significant — sector analysis separately modelled |
| Fertilisers — ammonia (gas-based, verified) | ~1.6–2.0 tCO₂/t NH₃ | Depends on EU benchmark for ammonia | CBAM fertiliser scope still maturing — NH₃ covered from 2026 | Pending implementation | Pending — methodology for ammonia CBAM deduction not yet finalised |
What Indian exporters must do right now — before the implementing act is finalised
The implementing act is pending but the CBAM obligations for 2026 imports are not. Every Indian exporter of steel, aluminium, or fertilisers to EU markets has been generating CBAM-relevant embedded emissions since January 1, 2026. The first annual CBAM declaration covering 2026 emissions is due May 31, 2027. The deduction — if the implementing act confirms eligibility — will be claimed in that declaration. Preparation must happen now, not after the implementing act lands.
The Article 9 deduction requires documented proof that a carbon price was effectively paid on verified embedded emissions. Without ACVA-verified GEI data, neither the CBAM embedded emissions calculation nor the CCTS carbon price deduction can be claimed. This means CCTS Form A (ACVA-verified, due approximately July 31, 2026) is simultaneously the CCTS compliance document and the foundation for the CBAM deduction claim. Indian exporters who do not have ACVA-verified GEI data for 2026 cannot claim the Article 9 deduction regardless of what the implementing act says.
If the implementing act adopts Option 1 (deduction for shortfall carbon payments only), the documentation required is the CCC purchase receipt from IEX/PXIL and the corresponding CCTS compliance records. If it adopts Option 2 (standard CCTS price applied to all embedded emissions), the documentation is the ACVA-verified GEI data plus official confirmation of the applicable CCTS carbon price. Both documentation trails start from the same CCTS compliance infrastructure — begin building it now.
The CBAM declaration is filed by the EU-authorised declarant (the EU importer), not by the Indian exporter directly. The Indian exporter must coordinate with the EU importer to ensure that the CCTS-CBAM deduction claim is built into the declarant’s annual CBAM declaration process. This requires the EU declarant to understand the India CCTS mechanism, accept the ACVA-verified GEI data, and be prepared to include the deduction when the implementing act confirms eligibility. Begin this conversation with EU buyers now — not in April 2027.
The Commission’s call for evidence (August 2025), the December 2025 review, and the ongoing 2026-2027 implementing act process are all trackable through the EU Taxation and Customs Union website. The Omnibus Regulation (EU) 2025/2083 provides the current legislative framework. When the implementing act on third-country carbon price recognition is published — expected 2026 — it will determine the exact methodology Indian exporters must follow to claim the deduction in the May 2027 declaration. Reclimatize.in will update this article when that implementing act is published.
Frequently Asked Questions
What is the Article 9 CBAM deduction and how does it apply to India’s CCTS?
Article 9 of Regulation (EU) 2023/956 (the CBAM Regulation) provides that the number of CBAM certificates an EU importer must surrender is reduced by the carbon price effectively paid by the producer in the country of origin on the embedded emissions of the imported goods. The carbon price must be paid under a recognised carbon reduction scheme — a tax, levy, fee, or emission allowance. Under the EU-India Strategic Agenda adopted September 2025, the EU explicitly committed to deducting carbon prices effectively paid in India from CBAM financial adjustments. The EU Commission’s December 2025 review acknowledged that prices paid under different compliance schemes can be deducted. However, the implementing act specifying exactly how the CCTS is recognised — and the methodology for translating India’s GEI-based CCC mechanism into a per-tonne deductible amount — had not yet been finalised as of April 2026 and is expected throughout 2026 to 2027.
Why does India’s intensity-based CCTS create a problem for the CBAM Article 9 deduction?
CBAM is designed to mirror the EU ETS, which imposes a per-tonne carbon cost on all emissions. Article 9 deducts a per-tonne carbon price paid on embedded emissions. India’s CCTS is intensity-based — entities only pay for shortfall tonnes above their GEI target. A plant that meets or beats its target pays zero carbon cost under CCTS (and earns CCCs to sell). The CCTS therefore does not impose a per-tonne cost on all embedded emissions — creating a structural mismatch with the Article 9 design. The EU Commission must develop a methodology to resolve this: either recognise only actual CCC payments as deductible (disadvantaging the cleanest Indian producers), or recognise an average CCTS carbon price applied to all embedded emissions (consistent with the EU-India Strategic Agenda’s intent), or develop a bilateral equivalency mechanism. The implementing act’s choice of methodology will determine whether the cleanest Indian producers benefit from the deduction or are paradoxically excluded by it.
What should Indian steel exporters do right now to prepare for the CBAM-CCTS deduction?
Four actions are urgent. First, establish ACVA-verified GEI data for FY2025-26 — the Form A submission due approximately July 31, 2026 is simultaneously the CCTS compliance document and the foundation for any Article 9 deduction claim. Without verified GEI data, no deduction can be claimed regardless of what the implementing act says. Second, maintain CCC purchase records or GEI outperformance documentation from the CCTS compliance process. Third, engage the EU-authorised declarant (EU importer) to include the CCTS deduction in the CBAM annual declaration planning — the May 2027 first annual declaration is 13 months away. Fourth, monitor the EU Commission’s implementing act publication through the EU Taxation and Customs Union website — when it lands, it will specify the exact methodology for claiming the deduction in the 2026 CBAM declaration.