According to three Indian sources, India is concerned about Britain’s potential levy on imports of high-carbon items such as steel and wants a mechanism in their proposed free-trade agreement (FTA) to resolve concerns resulting from such a policy.

Britain began talks with domestic stakeholders earlier this year on measures such as a possible carbon border tax, which may replicate the European Union’s carbon border adjustment mechanism (CBAM).

According to Indian officials, India now wants measures in the draft FTA that bind Britain to undertaking bilateral discussions with New Delhi if a CBAM-like measure is imposed.

The idea is to ensure the India-UK deal is future-proof, and something like CBAM can act as a new tariff barrier in the future,” one of the officials said.

According to two UK officials, the proposal is “unfair” since no decision has been made on whether to implement such a step.

The EU’s CBAM, the world’s first tax policy on cheaper imports of foreign polluting items, began in October, prompting concern among trade partners such as India, which intends to challenge it in the World Trade Organization.

The three Indian government sources declined to be identified since the trade talks with the UK are private. An emailed request for comment from India’s commerce ministry was not returned.

The British Department for Business and Trade said “The UK and India continue to work towards an ambitious trade deal that works for both countries. We have always been clear we will only sign a deal that is fair, balanced, and ultimately in the best interests of the British people and the economy.

The India-UK FTA discussions have met multiple stumbling blocks throughout negotiations, and the ambitious accord has now been postponed by more than a year from its prior date.

What is a Carbon tax?

It is a kind of polluter pays tax. It imposes a tax on the production, distribution, and use of fossil fuels according to the amount of carbon released during combustion. It is a low-cost method of reducing greenhouse gas emissions in the environment. It’s similar to a Pigouvian tax. It is founded on the notion that “polluter pays.” A carbon tax’s ultimate purpose is to limit, and ultimately abolish, the usage of fossil fuels.

The carbon tax will change for various fuels since the carbon content of each fuel varies. The quantity of carbon dioxide emitted is proportional to the carbon content of the fuel. The British Thermal Unit (Btu) heat unit will be used to calculate fuel taxes. It will not be determined by weight or volume. This is done to promote the usage of environmentally friendly fuels.