India to get its own carbon market

India is on the verge of creating a carbon market. The move will set emissions targets for emitters and allow overachievers to sell their excess emission cuts, while underachievers will have to purchase them to meet their goals. The market will be created once the Carbon Credit Trading Scheme (CCTS), notified in June 2023, comes in force.

In August 2024, the Bureau of Energy Efficiency (BEE), which will implement CCTS, released the scheme’s compliance procedure (see ‘Evolution of...’). But emission targets, which will determine CCTS’ effectiveness, are yet to be announced. BEE officials say CCTS will likely take effect by 2026.

Simply put, CCTS is a market-based mechanism to reduce or limit emissions. Its genesis lies in India’s commitment to meet its Nationally Determined Contributions—emissions reduction target for 2030 committed under the Paris Agreement of 2016. One of India’s targets is to reduce the “emissions intensity of its GDP by 45 per cent from 2005 levels by 2030”. In 2021, India also declared the target of becoming a net-zero emitter by 2070. These global commitments and the increasing impacts of climate change on India generated a need to limit emissions, leading to the government to launch new policies and instruments. CCTS is one such instrument.

The Carbon Border Adjustment Mechanism (CBAM), a tariff to be imposed by the European Union from 2026 (under which the bloc will put an additional price on imported products on the basis of green-house gases emitted in manufacturing them) and the development of carbon markets by developing countries like China and Indonesia, have also likely driven India towards CCTS. The challenge, however, is to ensure that the scheme fulfils its purpose of reducing emissions.