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Climate finance, carbon markets and carbon pricing

Climate money and the price of carbon: the funds and goals, green bonds and what may be counted green, and border taxes on carbon. Prelims has asked about carbon markets under Article 6 of the Paris Agreement and about a bond that funds both environmental and social projects.

Foundation note: India's carbon market: the Carbon Credit Trading Scheme

UPSC has asked

Prelims 2023: carbon markets as a tool against climate change

Showing 1 of 3 articles, those that changed from 1 to 30 June 2026.Show all

Carbon Border Adjustment Mechanism

Prelims and Mains

The Carbon Border Adjustment Mechanism (CBAM) is the European Union's charge on certain imports, paid by buying certificates that track the Union's carbon price.

It entered its definitive phase in January 2026.
It covers iron and steel, aluminium, cement, fertilisers, electricity and hydrogen.
Iron and steel are about 90 per cent of India's exports to the European Union that the mechanism covers.
It is not the climate logic of the mechanism that developing exporters object to.

The case for

A carbon price inside the bloc raises costs there, and cheaper imports would otherwise undercut it
The charge is meant to prevent carbon leakage

The case against

It is set by one bloc rather than agreed under the United Nations climate process
It cuts across common but differentiated responsibilities
Developing exporters, India among them, call it a trade barrier

From The Hindu, 19 August 2026, and the BRICS Environment Ministers' outcome documents as released by PIB, 17 August 2026

What changed

28 Jun 2026
- The Centre is working on a scheme to absorb 90 per cent of small enterprises' compliance cost.
- An Indian Council for Research on International Economic Relations (ICRIER) paper estimates EU imports of Indian iron and steel could fall about 24 per cent, with fertilisers and aluminium next.
Mains: ICRIER argues the mechanism will hurt India's trade with the EU while having negligible effect on emissions.
The Indian Express, 28 Jun 2026: EU carbon tax: Government to shoulder 90 per cent compliance bill of MSMEs (opens in a new tab)

Show history (1 other update)

23 Sep 2026
- Importers into the European Union start paying from February 2027 for goods shipped in 2026, by buying certificates that track the Union's carbon price.
- The mechanism deducts a carbon price paid at home, but India's carbon market sets intensity targets, so a mill that meets its target pays nothing at home and gets no deduction.
Mains: the charge moves production to Europe without cutting emissions and reverses the flow of climate finance, though the Union's worry about carbon leakage is real.
The Indian Express, 23 Sep 2026: Experts Explain | How the European Union's carbon tax works, and why BRICS pushed back against it (opens in a new tab)