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This paper explores how reductions in carbon dioxide (2) emissions of Indian manufacturing would impact the export competitiveness of Indian manufacturing firms, by estimating production functions of alternate specifications using data on manufacturing companies for 2007-2008. The results indicate substantial scope for reduction in 2 emissions through factor substitution and reduction in technical inefficiency. The analysis presented in the paper indicates that a reasonable carbon tax of US$ 4-15 per tonne of 2would cause costs in industrial companies to increase, on average, by 0.36%-1.33% and the consequent loss of exports because of the carbon tax is likely to be small. [ABSTRACT FROM AUTHOR]