Indian solar manufacturers can expect some relief, as the European Union (EU) has agreed to deduct the carbon price paid by exporters in India from the price they would have to pay under the Carbon Border Adjustment Mechanism (CBAM).

“A carbon price effectively paid in India will be deducted under the EU CBAM financial adjustment, which, being based on carbon content, will favour Indian exporters decarbonizing their CBAM goods. This mechanism is also being simplified to benefit small businesses,” the EU told the European Parliament in a communication on the New Strategic EU-India Agenda.

It said the EU and India have an opportunity to cooperate on developing a domestic carbon market to cut emissions and generate funds for the clean transition. India’s Carbon Credit Trading Scheme is advancing rapidly, and the EU can share lessons from its Emissions Trading Scheme on monitoring, reporting, verification, and sectoral benchmarks.

India launched the Carbon Trading Program in 2023, outlining the processes, regulating agencies, and rules for carbon credit trading.

The communication also stated that continued cooperation with the EU in renewable energy, energy storage, smart grids, energy efficiency, and renewable fuels will support India’s role as a supplier of clean energy and technology.

Recently, the European Solar Manufacturing Council recommended to the European Commission that solar products be brought under the CBAM’s ambit, as they rely heavily on carbon-intensive materials such as aluminum and steel, which are already covered by the adjustment mechanism.

It contended that solar products are heavily reliant on CBAM-covered materials such as steel and aluminum, but due to their downstream nature, they are not currently included under it. In a standard 22 kg solar module, 14 kg is glass, 3 kg is aluminum, and the remainder consists of other components.

India has consistently opposed CBAM in the World Trade Organization and other international forums, saying the carbon tax measure is also a kind of non-tariff trade barrier.

With the U.S. imposing 50% tariffs on Indian imports, solar manufacturers have been exploring alternative markets, such as Europe. The U.S. has been the primary destination for Indian solar module exports all these years.