India Builds Carbon Market, Aims to Lead Globally

ENVIRONMENT
Whalesbook Logo
AuthorVihaan Mehta|Published at:
India Builds Carbon Market, Aims to Lead Globally
Overview

India is strategically elevating its role in the global carbon market, moving beyond participation to actively shaping rules. While domestic institutions like CRI build trust and transparency, the nation's Carbon Credit Trading Scheme (CCTS) is establishing a regulatory backbone. Despite facing challenges such as lower credit prices compared to peers and evolving integrity standards, India's proactive approach positions it as a key player in the evolving climate finance landscape, aiming to meet its 2070 net-zero goals.

India Moves to Lead Global Carbon Market

India is making a strategic shift in the global carbon market, moving from just participating to actively shaping its rules. This effort is supported by domestic infrastructure like the Carbon Registry of India (CRI) and a regulatory framework called the Carbon Credit Trading Scheme (CCTS). By developing processes that align with international standards, India aims to lead the voluntary carbon market in South Asia and among middle-income countries. This is crucial as the global voluntary carbon market is growing, with a shift from 'avoidance' credits to more valuable 'removal' credits.

Challenges: Low Credit Prices and Trust

Building trust through transparency is key for India's carbon market. Institutions like CRI and companies such as Terrablu are crucial for formalizing projects. However, India faces a significant price gap. In early 2024, Indian carbon credits averaged $2.35 per tonne of CO2, far below neighbours like Sri Lanka ($3.77) and Pakistan ($28.11). This low price, along with global questions about credit quality and past issues with projects, highlights the need for strong integrity standards. India's new government-approved methods aim to improve offset quality, but international standards from Verra and Gold Standard remain vital for buyer confidence, especially for large corporations.

Investor Concerns: Regulatory Hurdles and Global Risks

Institutional investors see significant hurdles in India's carbon market. Despite the CCTS, regulatory issues persist. Delays in setting emission targets for industries like petrochemicals and steel weaken the scheme's impact and could lead to oversupply. Notably, the exclusion of the major emitter thermal power sector from early CCTS phases limits its nationwide effect. Global examples, like in Kenya, show risks of corporations generating credits while continuing pollution. There are also concerns about conflicts with local communities and lack of consent. Past Indian schemes like RECs and ESCerts saw prices collapse due to low demand and oversupply, a pitfall the CCTS must avoid.

Future Growth and Global Ties

India's carbon market is projected to grow substantially, from about $1.7 billion in 2026 to over $32 billion by 2035. Integrating the CCTS with international efforts, like Article 6.2 of the Paris Agreement, could enable cross-border credit trading and attract investment. The government's framework, including the Green Credit Programme (GCP), shows a commitment to a low-carbon future. However, meeting India's vast climate finance needs will require more than just market mechanisms. Success depends on matching global scale with domestic ambition, ensuring strong governance, broader sector inclusion, and credible pricing for real emission reductions.

Disclaimer:This content is for informational purposes only and does not constitute financial or investment advice. Readers should consult a SEBI-registered advisor before making decisions. Investments are subject to market risks, and past performance does not guarantee future results. The publisher and authors are not liable for any losses. Accuracy and completeness are not guaranteed, and views expressed may not reflect the publication’s editorial stance.