India is well-positioned to capitalise on the burgeoning $1 trillion global carbon market and could command a 20% share if it accelerates the implementation of its carbon credit trading scheme, set to be operational by 2026. This initiative aligns with global efforts led by organisations like the International Emissions Trading Association, which has been advocating for the operationalisation of Article 6—the United Nations carbon-credit mechanism—at COP29 in Baku. Meanwhile, India is preparing its own domestic CCTS, partly in response to the European Union’s impending carbon border tax.
At COP29, significant progress was made in finalising the carbon credit framework under the Paris Agreement, particularly regarding Article 6. This provision facilitates voluntary cooperation between countries in meeting climate targets and aims to establish a more standardised and international carbon market. A functioning global carbon market allows nations and businesses to purchase certified carbon offset credits to help meet their net-zero and climate commitments.
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While some market participants seek immediate solutions through alternative standards, the alignment of India’s national strategy with UN-backed frameworks signals a transformative shift in international carbon trading. By ensuring that its domestic CCTS aligns with global standards, India can enhance the credibility and acceptance of its carbon credits on the international stage.
Leveraging UN platforms for market growth
UN platforms play a crucial role in facilitating dialogue and collaboration between countries, thereby fostering a more integrated and efficient global carbon market. This is expected to provide Indian project developers with greater access to international buyers. Additionally, UN initiatives often offer technical assistance and capacity-building support to developing countries, strengthening their carbon market infrastructure and expertise. India can leverage these resources to improve the quality and competitiveness of its carbon credits.
A robust global carbon market also promises significant investment inflows into climate mitigation projects in developing economies like India. Furthermore, UN programs promote the transfer of clean technologies, which is vital for India to achieve its long-term emissions reduction goals. As India enhances its climate adaptation and mitigation strategies, an efficient carbon market can become a key driver of green economic growth.
India’s competitive edge in carbon markets
India has a natural advantage as a major supplier of carbon credits, backed by proactive government policies supporting climate adaptation and mitigation. Additionally, the country is set to benefit from its domestic carbon market, which will spur technological advancements and job creation, ultimately fostering a self-sustaining economic engine.
However, to remain competitive globally, India must ensure the strict implementation of its existing regulatory frameworks, such as the Environmental Impact Assessment (EIA). This will help domestic project developers maintain high standards, making their carbon credits more attractive in international markets.
Carbon credit trading scheme
In 2023, the Indian government announced plans to launch the Carbon Credit Trading Scheme by 2026, featuring both voluntary and compliance-based mechanisms. The establishment of a domestic carbon credit market opens up multiple lucrative business opportunities.
One carbon credit represents the reduction or avoidance of one metric ton of carbon dioxide or its equivalent in other greenhouse gases like methane. Businesses purchase these credits to offset their own emissions. While efforts are underway to standardise global carbon credit pricing, current prices vary widely, ranging from a few rupees to thousands, depending on quality, credibility, durability, and additional benefits.
Key challenges to address
While a carbon credit market is an effective tool for incentivising emissions reduction and enhancing cost efficiency, several challenges must be tackled for its successful implementation.
The foremost challenge is monitoring and maintaining oversight of carbon credit projects. Since these projects are often widespread and located in remote areas, ensuring transparency is difficult. Oversight typically relies on reports from project developers, who have a vested interest, or third-party verification agencies, which may not always be reliable.
Beyond domestic hurdles, India must also meet the stringent requirements of IETA, which will closely monitor technical aspects such as the selection of government-approved entities for emissions verification. IETA will push for high-integrity firms to serve as verifiers to maintain global trust in the process.
Adhering to global carbon market standards comes at a significant financial cost. India must not only establish stringent regulations but also secure funding to support the program effectively. Ensuring financial sustainability will be critical for maintaining credibility and achieving long-term success in the carbon trading space.
As the world intensifies its efforts to combat climate change, India stands at a crucial crossroads. The country has the potential to reap both economic and environmental benefits from a well-functioning carbon credit market. However, overcoming regulatory, monitoring, and financial challenges will be paramount. By aligning its domestic efforts with global frameworks and adhering to strict standards, India can drive its own sustainable development while contributing meaningfully to the global fight against climate change.