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India and Japan have signed a memorandum of cooperation on a joint credit mechanism under the Paris Agreement, aiming to enhance investment and carbon trading.
This partnership is crucial amid US tariffs and China's rare earth export restrictions, offering India a strategic alternative to bolster its manufacturing and sustainable innovation goals.
India's Union Ministry of Environment, Forest and Climate Change signed a memorandum of cooperation with the government of Japan on joint credit mechanism (JCM) under Article 6.2 of the Paris Agreement of the United Nations Framework Convention on Climate Change (UNFCCC). They also signed long-term agreements worth ¥10 trillion (nearly Rs 6 trillion) for economic security, covering artificial intelligence, defense, semiconductors and critical minerals such as rare earths.
This development comes when the US imposed a hefty export tariff of 50 per cent on Indian goods and the country is no longer part of the Paris Agreement.
India and Japan’s deepening special strategic and global partnership —marked by green tech investment, critical minerals cooperation and resilient supply chain development — offers India a vital economic and geopolitical alternative amid rising US tariffs, supporting its ambitions to become a manufacturing hub and a leader in sustainable innovation across the Global South, according to experts.
US’s 50 per cent tariffs on key Indian products have disrupted the India-US partnership, making stronger Japanese investment and technology ties a crucial alternative to cushion economic shocks, support high-value exports beyond the US, protect Indian SMEs and help India maintain resilience and progress toward becoming a manufacturing hub, they said.
Strategic partnership, especially in rare earth elements and other critical minerals, is pivotal because of China’s export ban in April 2025 on medium and heavy rare earth elements (samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium-related items). Though China eased export restrictions on India for permanent magnets after nearly four months, this has given the country a wake-up call.
Efforts are being made to incentivise the manufacturers and processors to build a stable supply chain domestically. However, given China’s dominance on every aspect of rare earths and hurdles involved in mining, processing and refining this critical mineral, building a supply chain will take a long time.
As far as bilateral carbon credits are concerned, experts said that amid global deadlocks on climate finance and technology transfer, the India–Japan JCM highlights how bilateral cooperation can scale climate action through carbon trading, technology localisation and capacity building — though timely creation of joint regulations remains crucial for its success and potential as a model at forums like Conference of Parties (COP) and G20.
The JCM between India and Japan comes at a time when UNFCCC countries are gearing up for the 30th Conference of Parties (COP30) to UNFCCC in Belem, Brazil in November. Around 23 of total 198 countries have so far submitted their national climate action plans or Nationally Determined Contributions (NDC), and Japan is one of them.
The development is significant ahead of COP30 because Article 6.2 remains a critical component of the ongoing implementation of the Paris Agreement. Following key decisions made at COP29, discussions at COP30 are expected to focus on the practical steps required for countries to operationalise the agreed-upon rules governing international carbon markets and cooperative approaches. The US has already exited from the Paris Agreement after the Trump administration assumed charge.
Article 6 provides the framework for voluntary international cooperation in climate action, including the use of carbon markets to help countries meet their NDCs. This mechanism can unlock vital climate finance for developing nations, while ensuring transparency and environmental integrity through a rules-based system.
COP30 will be instrumental in leveraging the operationalised Article 6 rules to promote robust implementation, enhance trust in carbon market mechanisms and support global efforts toward achieving the goals of the Paris Agreement. These cooperative approaches include both carbon markets (Articles 6.2 and 6.4) and non-market-based cooperation (Article 6.8).
Given that COP is around the corner and with a reluctance of countries such as the US to participate, bilateral market-based mechanisms show the commitment of other large economies to continue pursuing innovative ways to reduce emissions.
Amid rising Global North–South gridlocks on climate finance and technology transfer, the India–Japan Joint Crediting Mechanism (JCM) offers a strong bilateral model to scale climate finance, localise low-carbon technologies and meet Paris targets through carbon trading, investment and capacity building in both countries, according to Pooja Vijay Ramamurthi, fellow at the Centre for Social and Economic Progress (CSEP).
She, however, noted that creating joint norms and regulations for trading schemes is challenging and has hindered past India-Japan projects, making timely rule-setting essential. “If successful, this mechanism could be an example for other countries committed to reducing their emissions to showcase alternative cooperation modalities at forums such as COP and G20,” Ramamurthi said.
Meanwhile, last week, India announced a ‘national designated authority’, a mandatory requirement under the provisions of the 2015 Paris Agreement to enable a carbon emissions trading regime. In 2023, the country had launched its Carbon Credit Trading Scheme, a market-based mechanism to reduce greenhouse gas (GHG) emissions by creating a domestic carbon market.
The JCM between India and Japan will facilitate the deployment of decarbonising technologies through Japanese investments, contributing to GHG reductions and sustainable development under Article 6.2 of the Paris Agreement, to achieve Net Zero by 2070.