CBAM's Article 9 Problem: Why India's Carbon Credits May Not Offset the EU Bill

The EU's Carbon Border Adjustment Mechanism is often described as a tariff on carbon. It is closer to a price-matching rule. An EU importer of covered goods buys and surrenders CBAM certificates against the emissions embedded in what it imports, priced by reference to the EU Emissions Trading System. Article 9 is the relief valve: where a carbon price has already been effectively paid in the country of origin on those same emissions, the certificate obligation is reduced by that amount, so the same tonne of carbon is not charged twice.

The word doing the work is paid. Article 9 is drafted around a carbon price that has been borne, evidenced, and not subsequently rebated. It is a deduction for a cost incurred, not recognition of a climate policy in the abstract. A country can have a serious decarbonisation regime and still fail the test if that regime does not put a monetary price on the emissions of the exported good.

This is where the argument published by Live Law on 28 July 2026, under the title Carbon Credits, Not Carbon Prices: Why CCTS May Not Clear CBAM's Article 9 Bar, becomes commercially important rather than academic. India's Carbon Credit Trading Scheme (CCTS) sets greenhouse gas emission intensity targets for obligated entities and issues tradable carbon credit certificates to those who beat their target. An entity that outperforms earns an asset. An entity that underperforms buys certificates to close the gap.

The analysis argues that this structure produces a credit, and that a credit is not the same instrument as a price. An exporter that meets its intensity target under CCTS has paid nothing on the emissions still embedded in its steel or aluminium. There is no per-tonne charge to evidence, no receipt to hand the EU importer, and therefore, on this reading, nothing for Article 9 to deduct.

The counter-intuitive part is that the exporters best placed on emissions may get the least Article 9 relief.

Under an intensity-based crediting scheme, a producer operating below its assigned benchmark has no compliance cost at all. It may even be selling credits into the domestic market. Under CBAM, that same producer still ships goods with real embedded emissions, measured in absolute terms against the EU benchmark, and the EU importer still surrenders certificates for them. Domestic compliance status and CBAM exposure are measured on different scales.

The result is a gap that no amount of domestic good behaviour closes on its own:

• CCTS measures performance against an Indian intensity benchmark for the obligated entity.
• CBAM measures embedded emissions per tonne of the specific good entering the EU.
• Article 9 relief tracks money actually paid, which under a crediting scheme may be zero for a compliant producer.

The consequence is straightforward. Where a domestic carbon price is deductible, the cost is absorbed in India and shows up as a domestic tax line. Where it is not, the full CBAM certificate cost sits in the import transaction from 2027 and has to be allocated by contract between an Indian seller and an EU buyer who each believe the other should carry it.

Late July 2026 also brought the constructive news. The New Indian Express reported on 30 July 2026 that India and the EU had devised a dedicated CBAM work plan under the proposed free trade agreement, aimed at shielding small and medium exporters. ANI News reported the same day that the FTA includes a dedicated CBAM annexure addressing exporter concerns and SME support, and AL Circle reported on 4 August 2026 that the arrangement targets compliance support for aluminium exporters and SMEs specifically.

Read carefully, most of what has been described is procedural and capacity-building: help with emissions measurement, reporting mechanics, verification, and easing the administrative load on smaller firms that cannot staff a carbon accounting function. CNBC TV18 reported on 31 July 2026 that India had begun talks to prepare exporters for the new global climate trade rules, which is the same shape of intervention.

Reporting support is worth having. Under the transitional regime the practical burden on Indian suppliers has been data: producing verifiable installation-level embedded emissions figures that an EU importer can file. A work plan that standardises this removes friction and reduces the risk of default values being applied, which are generally punitive.

None of that is the same as resolving Article 9 equivalence. A work plan on reporting does not, by itself, convert a credit-issuing scheme into a deductible carbon price. Until the deduction question is answered, better data changes how accurately the bill is calculated rather than who pays it.

Sustainable Views reported on 4 August 2026 that India's CBAM bill may be lower than expected, citing analysis to that effect. That is a useful corrective to the more alarming early estimates, and it matters for aggregate trade policy. It does not help the individual mid-sized forging or long-products exporter whose EU order book is concentrated in two or three buyers, because for that firm the relevant number is not the national bill but the per-tonne charge on its own consignments.

The legal obligation to surrender CBAM certificates sits with the EU importer. The commercial incidence is decided by the supply contract, and in a buyer's market for a substitutable commodity it moves upstream quickly. Many EU buyers have already been adding CBAM cost pass-back language to renewal terms.

Two clauses decide the outcome.

Price escalation

A well-drafted escalation clause identifies specific input cost indices and adjusts price when they move beyond an agreed band. Most Indian export contracts index to raw material, energy, and freight. A CBAM charge is none of those. It is a regulatory cost imposed at the border of the destination market, and an escalation clause that does not name it will not capture it. Exporters renewing EU supply agreements for the 2027 shipping year should be adding an explicit CBAM adjustment mechanism that references the certificate price and the verified embedded emissions figure actually filed, so both sides are adjusting against the same evidenced number.

Change in law

Change in law clauses in commodity supply contracts are frequently narrow. Many are drafted to cover a change in the law of the seller's jurisdiction, or a change that makes performance unlawful, rather than a foreign regulatory charge that makes performance more expensive for the buyer. Others carve out taxes and duties entirely, on the logic that Incoterms already allocate them.

The Incoterm can settle the question before anyone negotiates it. Where the contract runs on DDP or a similar delivered term, the seller is generally responsible for import formalities and charges in the destination country. An Indian exporter selling DDP into the EU without a CBAM-specific carve-out may find it has already agreed to absorb the certificate cost.

The practical instruction is to read the Incoterm, the change in law clause, and the escalation clause together, and to treat any contract covering EU shipments under the definitive regime as needing that review now rather than at renewal.

This is where the Article 9 question stops being a trade policy story and becomes a credit story. An unrecoverable per-tonne charge on EU-bound volumes does two things at once, and a trade credit underwriter looks at both.

The first is the exporter's own position. Steel, aluminium, and cement exports are moderate-margin businesses at the best of times. An exporter that absorbs a CBAM charge on a meaningful share of turnover reports a lower operating margin, which flows into the ratios its own insurers, bankers, and buyers assess. Firms whose EU exposure is concentrated feel this disproportionately.

The second is the EU buyer. The importer of record surrenders the certificates and funds them. Downstream fabricators and distributors operating on thin working capital face a real cash timing problem, because certificates are purchased and surrendered on the regulator's calendar rather than the buyer's collection cycle. A credit underwriter assessing that buyer in 2027 is assessing a business with a new, non-deferrable, carbon-linked cash outflow.

The practical consequences for an exporter relying on cover, whether from ECGC or a private credit insurer, are worth stating plainly:

1. Credit limits set on EU buyers before the definitive regime were set on a different cost structure and should not be assumed to roll forward unchanged.
2. Discretionary limits granted on the exporter's own trading history are the first thing tightened when a sector-wide cost shock appears.
3. Longer credit periods conceded to help a buyer fund certificate purchases extend the exposure window, which affects both premium and limit availability.
4. Concentration matters more than usual, because CBAM does not hit one buyer, it hits every buyer in the covered sectors at the same time.

Exporters weighing which route to use should compare the underwriting behaviour of the two channels directly. Our comparison of ECGC and commercial trade credit insurance sets out how limit-setting, discretionary authority, and claim documentation differ between them, and the difference is sharpest exactly when a whole buyer segment is being re-rated at once.

Exporters frequently ask whether contract frustration cover picks up a CBAM loss. The honest answer is that it almost never will, and understanding why prevents a wasted claim and a false sense of protection.

Contract frustration wordings respond to defined events that prevent or prohibit performance: import or export licence cancellation, embargo, expropriation, transfer or inconvertibility of currency, war, or a public buyer's non-honouring of an obligation. The trigger is that performance becomes impossible or unlawful, or that a specified political act intervenes. Cost is not on that list.

A CBAM charge does not stop anyone performing. The goods can be shipped, cleared, and delivered. Someone simply pays more. Where a buyer then walks away or demands renegotiation because the delivered economics no longer work, the loss is commercial in nature, and most wordings meet it with either a non-payment trigger requiring the buyer's insolvency or protracted default, or an exclusion for disputes and for the insured's own contractual terms.

These policies were built for perils that stop a transaction. A cost increase that leaves the transaction possible falls outside that design, however painful the number is.

Three points follow for anyone reviewing the policy wording:

• Non-payment cover responds to a buyer that cannot pay, which is a genuine downstream possibility if CBAM costs strain a thinly capitalised EU importer. That is the realistic route to recovery, and it depends on the buyer's failure rather than on CBAM itself.
• A dispute exclusion will usually suspend cover where the buyer has raised a bona fide pricing or quality dispute, and a renegotiation triggered by cost allocation can be characterised that way.
• Political risk and trade disruption wordings sit closer to tariff-style events, and are worth reading alongside this exposure. We covered how those respond to duty volatility in trade disruption and political risk cover for Indian exporters.

The broader treatment of CBAM's insurance touchpoints, including embedded-emissions data liability, is in our earlier piece on CBAM and exporter trade insurance.

A recurring mistake is to file CBAM under compliance and consider it handled once someone owns the reporting. Reporting is one exposure. The cost is a different one, and it belongs in a different row.

For an exporter with material EU volumes in covered goods, the register should carry at least three separate entries.

A margin and pricing exposure. Quantified as verified embedded emissions per tonne multiplied by EU-bound tonnage multiplied by an assumed certificate price, with a sensitivity on the certificate price and an explicit assumption that the Article 9 deduction is zero until proven otherwise. The owner is commercial or finance, not compliance. The mitigation is contractual allocation and, over a longer horizon, actual emissions reduction at the installation.

A counterparty credit exposure. Owned by finance and treasury. The measure is EU receivables outstanding, concentration by buyer, and insured versus uninsured proportion. The mitigation is limit review with the credit insurer, tighter payment terms where a buyer's cost position has deteriorated, and a deliberate decision on how much uninsured exposure the firm is prepared to run on a segment facing a correlated cost shock.

A data and warranty exposure. Owned by operations and legal. Where the exporter warrants embedded emissions figures to the EU importer, an inaccurate figure can convert into a contractual liability for the importer's shortfall and penalties. This is a drafting problem before it is an insurance problem, and general liability wordings are not written to pick up assumed contractual liability of that kind.

Where the Article 9 question ultimately lands is not something an exporter controls. It will be resolved between two administrations, possibly through the FTA annexure, possibly later, and possibly by India restructuring CCTS so it produces an evidenced price rather than only a credit. What an exporter does control is whether its contracts, its credit limits, and its register assume the favourable answer. Assuming the unfavourable one costs very little if it turns out to be wrong.