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Carbon Markets and India’s Emerging Ecosystem
Centre finalises National Designated Authority to kick-start carbon markets
Context: India has finalised its National Designated Authority (NDA) to operationalise a carbon market, marking a key step in aligning with the Paris Agreement. This move will enable trading of emissions reductions, mobilise green finance, and strengthen India’s path toward its climate commitments.
What are carbon markets?
Carbon markets are trading systems where entities buy and sell carbon credits—each representing one tonne of CO₂ (or equivalent greenhouse gas) reduced, removed, or avoided. Types of Carbon Markets:
- Compliance Markets: Mandated by law or international agreements (e.g., EU Emissions Trading System, China’s ETS)
- Voluntary Markets: Used by companies or individuals to offset emissions voluntarily (e.g., through reforestation or renewable energy projects)
These markets put a price on pollution, incentivising emission reductions and channelling funds into climate-positive projects.
How can carbon markets help in mitigating the effects of climate change?
- Cost-effective mitigation: Enables emission reductions where it is cheapest, lowering the overall cost of meeting global climate goals.
- Technology transfer: Attracts finance and modern technologies into developing nations through carbon credit projects.
- Private sector participation: Creates economic incentives for industries to innovate and adopt low-carbon technologies.
- Promotes global cooperation: Industrialised nations can fund emission reduction in developing countries, ensuring common but differentiated responsibilities (CBDR).
- Support global cooperation: Countries can trade credits under Article 6 of the Paris Agreement, aligning efforts with their Nationally Determined Contributions (NDCs).
What measures have been taken to augment the carbon market ecosystem in India?
- Institutional Framework: National Designated Authority (NDA) (2024) – mandated by Article 6 of Paris Agreement. A 21-member body headed by MoEFCC Secretary to approve, authorise, and monitor carbon market activities.
- Policy and Regulatory Initiatives: The Energy Conservation (Amendment) Act, 2022 provides the legal foundation for India’s carbon credit trading scheme, building on earlier market instruments like the Perform, Achieve, and Trade (PAT) Scheme for energy efficiency certificates and the Renewable Energy Certificate (REC) Mechanism for renewable energy attributes.
- NDC Commitments (2030 targets): Reduce emissions intensity of GDP by 45% (2005 baseline). Achieve 50% cumulative electric power capacity from non-fossil fuel sources. Create 2.5–3 billion tonnes CO₂ carbon sink via afforestation.
- Market Development & Pilot Programs: Carbon Credit Trading Scheme (CCTS) framework under CERC (Central Electricity Regulatory Commission). Pilot voluntary carbon markets in renewable energy, green hydrogen, forestry, and agriculture.
- International Engagement: Participation in Article 6 negotiations at COPs. Collaboration with nations like Switzerland and Japan for carbon credit trade pilots.
