The conventional growth model, driven by industrialization, has pushed planetary boundaries beyond safe limits. To ensure sustainable development, economic growth must be decoupled from environmental degradation. Carbon markets provide financial incentives to industries for reducing greenhouse gas emissions while continuing economic expansion.

A carbon market enables entities to buy and sell carbon credits, each representing the removal or reduction of one ton of CO₂-equivalent emissions from the atmosphere. Credits are generated through activities like renewable energy, reforestation, agroforestry, or biochar production. Companies purchase these credits to offset their emissions as they transition towards cleaner technologies.

India’s Carbon Market Framework

Carbon Credit Trading Scheme (CCTS)

• Established under the Energy Conservation (Amendment) Act, 2022.
• Includes both compliance (mandatory) and voluntary mechanisms aligned with Article 6 of the Paris Agreement.
• Overseen by the National Designated Authority comprising 21 members, ensuring transparency and accountability.
• Implemented operationally by the Bureau of Energy Efficiency (BEE), which sets emission intensity benchmarks and monitors compliance.
• A national registry and trading platform track transactions, supported by approved methodologies spanning biomass, compressed biogas, and low-emission agriculture.

Key Features of India’s Carbon Market

• Emission Intensity Targets: Legally binding limits for energy-intensive sectors such as aluminium, cement, pulp and paper, chlor-alkali, iron and steel, petrochemicals, and textiles.
• Trading Mechanism: Entities exceeding reduction targets can sell surplus credits to those falling short, encouraging cost-effective decarbonization.
• Global Alignment: Supports India’s updated Nationally Determined Contributions (NDCs) to reduce emission intensity by 45% by 2030 (relative to 2005 levels).

Challenges and Safeguards

Land Rights and Community Consent

• Many offset projects involve land use changes impacting local communities, especially tribal and marginalized groups.
• The current framework lacks sufficient focus on securing informed consent and protecting land rights, risking dispossession and livelihood disruption.

Equitable Benefit Sharing

• Carbon revenues must be fairly distributed, ensuring marginalized farmers and tribal communities share financial gains.

Transparency and Accountability

• Past global experiences warn against greenwashing—superficial environmental claims with no real emission reductions.
• Opaque contracts and power imbalances increase exploitation risks, underscoring the need for clear, community-centric agreements.

Environmental Integrity

• Robust monitoring, reporting, and verification (MRV) systems are essential to confirm genuine emission reductions and prevent carbon leakage.

Learning from the Kenyan Experience

• The Kenyan carbon project highlights risks if socio-environmental safeguards are ignored—disrupting customary land use and local livelihoods under a “green veneer.” This example underscores the importance of integrating land rights and equitable revenue sharing in India’s carbon market.

The Way Forward: Balanced and Transparent Regulation

• Avoid overregulation while preventing exploitative practices.
• Embed free, prior, and informed consent (FPIC) and formalize benefit-sharing arrangements.
• Promote community oversight and stakeholder consultations.
• Develop robust MRV systems to maintain environmental integrity and build trust.

A Just and Sustainable Carbon Market

India’s carbon market offers a strategic tool to meet climate goals while supporting economic growth. However, its success hinges on inclusive policies that empower vulnerable communities and safeguard ecological integrity. Ethical safeguards are crucial to transform carbon markets into instruments of climate justice rather than instruments of inequality.