Carbon Markets: India’s Way Forward

India's commitment to achieving net-zero emissions by 2070 is fundamentally reshaping its economic and regulatory environment. The nation's approach, detailed in the Carbon Credit Trading Scheme (CCTS) 2023, moves carbon credits from a corporate social responsibility (CSR) tool to a central financial and strategic instrument.

To understand the rapidly evolving Indian carbon market and its significance in the context of recent global climate discussions, including the environment following COP 30 we present the key phases of this transition.

1. The Market's Foundational Shift (Beyond CSR)

The market for reducing and offsetting greenhouse gas (GHG) emissions is undergoing a decisive shift:
●    Strategic Imperative: Carbon credits are transitioning from voluntary initiatives to regulated financial instruments essential for meeting statutory obligations.
●    Stakeholder Scrutiny: Investors and regulators are now closely monitoring and quantifying companies' climate-related obligations, including the cost to mitigate emissions and offset them using credits.
●    Net-Zero Alignment: This regulatory pivot is a pivotal step in achieving India’s goal of reducing its GHG emissions intensity by 45% by 2030 from the 2005 baseline, a critical milestone on the path to its 2070 net-zero commitment.

2. The Mechanics: CCTS and Global Integration

The national carbon market, established under the Energy Conservation (Amendment) Act 2022, operates via the Carbon Credit and Trading Scheme (CCTS).
●    Dual Mechanism: The CCTS functions through a Compliance Mechanism for designated entities across nine emission-intensive sectors, and an Offset Mechanism for entities voluntarily undertaking GHG reduction projects (e.g., in agriculture, forestry, and waste management).
●    Rate-Based Model: India has adopted an intensity-based, rate-based model, where obligated entities earn credits by surpassing assigned emissions intensity benchmarks. This differs from the traditional cap-and-trade systems used globally, such as the EU ETS.
●    Article 6 Linkage: The CCTS is essential for India’s engagement with the Paris Agreement’s Article 6, which facilitates international cooperation. India formalized its entry into Article 6.2 through a partnership with Japan under the Joint Crediting Mechanism (JCM), enabling international carbon trading and technology transfer.

3. Outlook and Operational Challenges

In the wake of global climate summits, the success of India's carbon market hinges on addressing key structural and operational challenges:

To know more about the CCTS, its full implications, and the roadmap for business participation, read the entire document: "Carbon Markets: India’s Way Forward."