Despite the decline in carbon credit values, India should maintain its pursuit of carbon credits and clean development mechanisms as they remain crucial for balancing environmental commitments with economic growth imperatives.

Arguments for Maintaining Carbon Credit Mechanisms

• Long-term Market Recovery: Carbon credit prices, despite falling to $5-10 per ton in 2024, are expected to rebound as global climate policies tighten and demand increases post-2025.

• Technology Transfer Benefits: Clean Development Mechanism (CDM) projects facilitate technology transfer worth $2.5 billion annually to developing countries, enhancing India's clean technology capabilities.

• Employment Generation: India's renewable energy sector, supported by carbon financing, employs 1.17 million people with potential to create 3.4 million jobs by 2030.

• Energy Security: Carbon credit revenues help subsidize renewable energy projects, reducing India's $175 billion annual fossil fuel import bill and enhancing energy independence.

• International Competitiveness: Maintaining carbon credit mechanisms positions India favorably in global markets where carbon border adjustments are being implemented by EU and other developed nations.

Challenges and Market Realities

• Price Volatility: Carbon credit prices dropped 70% from 2021 peaks, creating uncertainty for project developers and reducing financial viability of clean energy investments.

• Market Oversupply: Excess carbon credits in voluntary markets have created a supply glut, with 2.4 billion credits available against annual demand of 300 million tons.

• Quality Concerns: Issues with additionality and permanence have reduced confidence in carbon offset projects, leading to stricter verification standards.

India's Strategic Approach

• Domestic Market Development: India launched Carbon Credit Trading Scheme (CCTS) in January 2025, creating domestic demand and price stability for carbon credits.

• Sectoral Integration: Integration with National Solar Mission and Green Hydrogen Mission ensures carbon revenues support strategic energy transitions.

India should continue pursuing carbon credits while developing robust domestic markets and quality standards. The Article 6 mechanisms under Paris Agreement offer renewed opportunities for international cooperation, making carbon credits essential for achieving India's net-zero by 2070 target while meeting growing energy demands projected at 15,820 TWh by 2047.