Carbon markets are pivotal in achieving global climate targets by incentivizing greenhouse gas (GHG) reductions. As COP-29 in Baku highlights the role of carbon finance, India, with its updated Nationally Determined Contributions (NDCs) and ambitions for a domestic carbon market, is poised to lead global climate action.
However, challenges like ensuring integrity, alignment with Article 6 of the Paris Agreement, and regulatory robustness need to be addressed.
What are Carbon Credits?
Definition: Tradable certificates representing avoided or removed GHG emissions, equivalent to one metric ton of CO₂.
Credits: Energy Tracker Asia
Purpose: Allow entities to transfer and "retire" credits to meet climate targets or contribute to mitigation.
Certification: Issued by governments or independent bodies, adhering to standardized Global Warming Potentials (GWPs).
Uses: Serve compliance or voluntary reporting and support broader climate mitigation efforts.
Opportunities for India in Developing a Domestic Carbon Market
Economic Growth:
India issued 278 million credits between 2010–2022, accounting for 17% of global supply.
Potential to create 200,000+ jobs, boost green finance, and support the $5 trillion economy target.
International Climate Leadership:
As a top emitter and renewable energy leader, India can shape global climate finance frameworks.
Initiatives like the International Solar Alliance highlight India’s leadership potential.
Industrial Competitiveness:
Carbon pricing drives modernization, innovation, and efficiency.
Examples: EU-ETS reduced industrial emissions by 41% (2005–2022); JSW Steel leads in low-carbon solutions.
Digital Integration:
India’s digital success (UPI, CoWIN) offers a template for carbon trading platforms.
Blockchain, IoT, and AI can enhance transparency and reduce verification costs.
Green Investment Catalyst:
Carbon markets can attract ESG investments (~18% of foreign financing in emerging markets).
Supports green bonds and initiatives in renewable energy, efficiency, and conservation.
Rural Development:
Farmers can earn additional income through carbon farming (e.g., Maharashtra pilot projects).
Encourages agroforestry, sustainable agriculture, and rural renewable energy projects.
Sectoral Transformation:
Opportunities across energy, manufacturing, real estate, and transport sectors.
Performance Achieve Trade (PAT) scheme shows industry readiness for market mechanisms.
Knowledge Economy Development:
Carbon markets foster expertise in accounting, trading, and climate finance.
Initiatives like the Climate University Network (100+ universities) build skills and research capacity.
Urban Sustainability:
Projects in waste management, clean transport, and urban forestry boost sustainable urban development.
Examples: Indore’s success in generating revenue from waste carbon credits.
Challenges in Developing Carbon Markets in India
Market Design:
Balancing environmental goals with economic realities is complex.
Uniform pricing mechanisms are difficult due to diverse industrial capacities.
Measurement & Verification:
Inadequate emissions data and monitoring systems hinder credibility.
MSMEs lack technical capacity for accurate reporting.
Regulatory Gaps:
Implementation delays (e.g., Green Credit Programme) expose institutional constraints.
Coordination between multiple agencies creates operational inefficiencies.
Industry Readiness:
High compliance costs may exclude MSMEs, creating market distortions.
Gaps in carbon accounting and trading expertise across sectors.
International Alignment:
Balancing sovereignty and global standards (Article 6 compliance) is challenging.
Risks of carbon leakage and competitiveness concerns require careful policy design.
Credit Integrity Issues:
Double counting and additionality concerns undermine market credibility.
Overlapping schemes like PAT and RECs complicate tracking mechanisms.
Regional Disparities:
Market benefits may concentrate in industrialized states, neglecting underdeveloped regions.
Equity concerns require inclusive mechanisms.
Technology Gaps:
Secure, transparent trading platforms need significant investment.
Digital divides across regions and industries hinder participation.
Speculation & Greenwashing:
Risk of price manipulation and misuse of offsets (e.g., "phantom credits").
Credits: ecolife.com
Ensuring market credibility is critical for consumer trust.
Measures to Accelerate Carbon Market Development
Phased Implementation:
Begin with high-emission sectors and expand gradually.
Build capacity through a tiered approach similar to China’s Emissions Trading System.
Digital Infrastructure:
Use blockchain for transparent tracking and IoT for real-time monitoring.
Standardized digital reporting formats reduce transaction costs.
Capacity Building:
Develop certification programs for carbon market professionals.
Establish guidance for emissions reporting and sectoral pathways.
Dynamic Pricing:
Introduce price collar mechanisms to prevent volatility.
Use market stability reserves to balance supply-demand dynamics.
Sectoral Integration:
Link PAT, RECs, and carbon markets to prevent overlap.
Create compliance mechanisms for hard-to-abate sectors.
Regional Frameworks:
State-level carbon market cells to provide localized support.
Revenue-sharing models to incentivize state participation.
International Alignment:
Align market rules with Article 6 and establish frameworks for credit transfers.
Strengthen bilateral partnerships for capacity building.
Conclusion
India’s carbon market is a transformative step toward sustainable development, aligning with SDG 13: Climate Action. By addressing design, regulatory, and technological challenges, it can drive emissions reductions, attract green investments, and position India as a global climate leader.
.png)
.png)
