Trading carbon: An efficient market can enable India's green transition

Ahead of the 30th Conference of Parties (COP) next month in Belém, Brazil, India is set to operationalise its Carbon Credit Trading Scheme (CCTS) by the end of October and join the United Nations-supervised voluntary carbon market from January, marking a turning point in climate governance. Despite its lower historical emission, India’s policies are among the most ambitious, especially its commitment of 500 gigawatt of renewable capacity by 2030 and the target of net-zero by 2070. The first phase of the CCTS will target industries such as aluminium, cement, and pulp and paper, covering 282 units that also include large business groups. The scheme will be further expanded to cover sectors such as steel, refineries, petrochemicals, and textiles. The design is clear. Build a compliance-driven cap-and-trade system where firms that outperform emission-reduction targets can sell surplus credits, while laggards must pay for excess emission.

 

Other than meeting India’s climate objectives, the domestic carbon market has profound implications for the country’s export competitiveness. The European Union has already operationalised its Carbon Border Adjustment Mechanism (CBAM), which will tax imports from countries with weaker carbon regimes. Unless Indian producers can credibly demonstrate their emission performance, they risk losing access to lucrative markets. Moreover, cross-border carbon trading can enable Indian firms to sell credits abroad, which would not only help offset transition costs but also deepen India’s integration with global green value chains. By aligning domestic industry with global carbon standards, CCTS could act as both a shield against trade barriers and encouragement for green exports. But at the same time, smaller firms, lacking access to finance and clean technology, should not be left behind. Concessionary credit and capacity-building initiatives can enable these enterprises to participate in the carbon market, generate offsets, and remain competitive.

 

Global experience also offers valuable lessons. The European Union’s Emissions Trading System (ETS), for instance, has helped reduce emission by around 47 per cent in covered sectors since 2005. However, it took years of course correction, particularly to address the early oversupply of credits, which depressed carbon prices and blunted incentives. At the same time, China’s national carbon market, though the largest by volume, still struggles with weak data integrity and thin trading. India should work towards avoiding these pitfalls by prioritising accurate monitoring, reporting, and verification (MRV) frameworks, ensuring penalties for non-compliance and preventing speculative distortions. One way to tackle this is through digitally verified carbon offsets (DVCOs), which use blockchain and digital tracking to ensure the integrity of credits. Such tools can help prevent double-counting, improve transparency, and assure international buyers of the quality of Indian credits. For investors focused on economy, society, and governance, this reliability will be crucial in determining whether to channel capital into India’s sustainable projects. The CCTS, combined with DVCOs, could thus attract foreign capital flows and incentivise global funds to back India’s decarbonisation push. Done right, the CCTS could transform carbon trading into a catalyst for green industrial transformation.