India-UK FTA: India Warns of Retaliation if UK Implements Carbon Tax, Say Government Sources

 Despite progress in finalizing a Free Trade Agreement (FTA) between India and the United Kingdom, India has issued a firm warning: any move by the UK to implement a Carbon Border Adjustment Mechanism (CBAM) will prompt retaliation. Senior officials from the Ministry of Commerce confirmed this stance on May 8.




“Both countries have agreed that if the UK introduces CBAM, India reserves the right to take retaliatory measures. This understanding has been reached, and official communication will soon be exchanged to confirm it,” a top government official stated.

Related: India-UK FTA text to be finalized within 3 months, setting the stage for signing.

Another official highlighted that Indian exporters are primarily concerned about the potential increase in documentation and compliance requirements, rather than the risk of losing market access. “CBAM won't block Indian exports to the UK, but it could bring in additional bureaucracy. One solution being considered is imposing a domestic tax on carbon-intensive goods before export, which could potentially exempt them from CBAM,” the official noted.

Earlier, on May 6, Commerce Minister Piyush Goyal reiterated India's position against unilateral climate-related trade barriers. Speaking at the Columbia India Energy Dialogue 2025, Goyal said that India would respond in kind to the European Union’s CBAM and adopt a similar approach if the UK implements such a measure.

“It would be unwise to impose taxes on friendly nations like India. I hope rational thinking prevails,” Goyal remarked.

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