A thriving carbon market is just what India needs to accelerate its decarbonisation efforts and achieve the imposing targets it has set for itself, leading up to net-zero. Given its burgeoning economy and energy demands, India's approach to decarbonising is crucial for global environmental health, too.
Among other initiatives, the carbon credit trading schemes introduced in 2023 and the much-anticipated launch of the Indian Carbon Market in early 2026 can potentially reshape the green energy landscape and emissions management.
To be sure, while there are several decarbonisation levers, such as electrification, carbon capture, utilisation and storage, circular economy and energy efficiency improvements, their capital-intensive nature makes large-scale implementation a challenge.
Carbon markets, on their part, can provide a cost-effective alternative to more-expensive emission reduction pathways, thereby making decarbonisation viable in the short to medium term as well.
Enabling trade in carbon credits will allow entities to offset unavoidable emissions while channelling resources into green initiatives. This flexibility reduces the economic burden posed by decarbonisation, making climate goals more achievable across sectors.
Here are eight strategies for India to tap the opportunity.
Among other initiatives, the carbon credit trading schemes introduced in 2023 and the much-anticipated launch of the Indian Carbon Market in early 2026 can potentially reshape the green energy landscape and emissions management.
To be sure, while there are several decarbonisation levers, such as electrification, carbon capture, utilisation and storage, circular economy and energy efficiency improvements, their capital-intensive nature makes large-scale implementation a challenge.
Carbon markets, on their part, can provide a cost-effective alternative to more-expensive emission reduction pathways, thereby making decarbonisation viable in the short to medium term as well.
Enabling trade in carbon credits will allow entities to offset unavoidable emissions while channelling resources into green initiatives. This flexibility reduces the economic burden posed by decarbonisation, making climate goals more achievable across sectors.
Here are eight strategies for India to tap the opportunity.
Building Domestic Market First
First and foremost, India's strategy should focus on establishing a robust domestic carbon market before venturing into international collaborations.
This will ensure that the foundational elements of the market, such as regulatory frameworks, participant engagement and infrastructure, are well-developed and tailored to India's unique economic and environmental realities.
By prioritising internal stability and effectiveness, India can create a resilient market capable of meeting national decarbonisation targets while laying the groundwork for future global partnerships.
Designing For Seamless Global Integration
While a strong domestic market is essential, long-term success will stem from the ICM’s ability to integrate smoothly with global markets. Harmonising standards and practices with international norms is critical to prevent barriers in cross-border trading.
Participating effectively in the global carbon economy will enhance India's ability to attract investment and leverage international best practices. While the present baseline-and-credit mechanism deployed for India can create challenges for international collaboration, a switch to a cap-and-trade mechanism can be considered as the country's emissions peak.
Achieving Optimal Carbon Credit Pricing
Setting the right price for carbon credits is a delicate balance that can significantly influence the market's dynamics. Accurate pricing mechanisms are essential to reflect the true cost of carbon emissions and incentivise businesses to adopt greener practices.
India's approach involves developing a pricing strategy that accounts for economic realities, environmental goals and market demand.
Standardising Definitions For Clarity, Consistency
A critical challenge in carbon markets is the lack of standardised definitions for what constitutes green versus polluting practices. Without clear and consistent definitions, creating a cohesive and trustworthy global market becomes nearly impossible.
India must push for establishing these standards, which will not only facilitate international trade but also provide clear guidelines for businesses and investors, fostering greater confidence in the system.
Leveraging New-Age Technologies
Advanced technologies such as blockchain, artificial intelligence and the Internet of Things can enhance the efficiency and transparency of carbon markets.
For instance, blockchain can provide immutable records of carbon credit transactions, while AI can optimise emissions tracking and reporting. By integrating these new-age technologies, the ICM can be made more effective, credible and efficient.
Establishing Secondary Market For Liquidity
To ensure the ICM thrives, it is essential to build a secondary market where carbon credits can be freely traded, thereby generating liquidity.
A vibrant secondary market provides participants the flexibility to buy and sell credits as needed, enhancing the overall functionality and attractiveness of the carbon trading system.
Generating Supply, Demand For Carbon Credits
A successful carbon market depends not only on generating carbon credits but also on creating robust demand for them. India must focus on strategies that encourage businesses to purchase carbon credits, such as regulatory mandates, incentives for sustainable practices and raising awareness about the benefits of carbon trading.
By fostering both supply and demand, the market can achieve a sustainable equilibrium, driving continuous progress in emissions reduction and green energy adoption.
Aligning Policy To Build Trust, Credibility
For a carbon market to gain traction, there must be strong alignment between policy and national goals.
Clear and consistent policies provide necessary guidelines and incentives for market participants, while building trust through transparency and accountability ensures sustained engagement.
Credibility is reinforced by rigorous monitoring, reporting and verification systems. India's commitment to aligning these elements will eventually either make or break the ICM.
The Road Ahead
Successful implementation of the strategies outlined above will not only help India achieve its climate goals but also position it as a key player in the global carbon economy.
The country is positioning itself to make significant strides in reducing carbon emissions, fostering green energy and contributing to the charge against climate change. Proactive measures in establishing a carbon credit trading scheme and preparing for a comprehensive carbon market further underscore its commitment to a sustainable future.
The approach can offer valuable lessons for developing economies in balancing economic growth with environmental stewardship. After all, carbon markets are not merely an environmental imperative. They can also be a catalyst for innovation and development.
Sourav Mitra is director, energy, consulting, Crisil Market Intelligence & Analytics.
Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.
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