How India’s Carbon Market Vision Could Become the Blueprint for Global South

After two decades of experimenting with market-based mechanisms for emission reduction and energy efficiency, India is preparing to launch a full national carbon pricing and trading system by early this year. The government has already set sectoral emission targets and released detailed guidelines to support the transition. Unlike most countries that began with only a compliance market, India’s system will combine both a mandatory mechanism and a voluntary offset market. This dual structure will cover hard-to-abate sectors through compliance requirements while enabling unregulated sectors, including agriculture, to participate by generating carbon credits from verified emission reductions, avoidance or removals.

The Global Challenge  

India’s Carbon Credit Trading Scheme (CCTS) builds on lessons from the Clean Development Mechanism (CDM) and the Perform, Achieve and Trade (PAT) framework but is far broader in scope and ambition. While CDM enabled industrialised countries to earn credits by funding emission-reduction projects in developing economies, PAT remains India’s core energy-efficiency mechanism for energy-intensive sectors. However, CCTS aims to reduce the overall greenhouse gas intensity through a unified domestic trading system that addresses gaps in earlier regimes.  

The scheme covers nine hard-to-abate sectors—aluminum, cement, steel, paper, chlor-alkali, fertiliser, refinery, petrochemical and textiles—which must meet mandatory emission targets and participate in the trading market. In March 2025, the government approved eight carbon-credit methodologies spanning energy distribution and demand, green hydrogen, industrial efficiency, waste management, and afforestation and reforestation.  

The challenge now is not only ensuring domestic industries reduce emissions in line with India’s nationally determined contributions (NDCs)—including a 45% cut in emissions intensity by 2030 and net zero by 2070—but also designing a trading scheme aligned with global standards so Indian credits are internationally recognised and exports avoid penalties in markets such as Europe.

Influence of Global Carbon Regime  

In 2023, as India launched the Carbon Credit Trading Scheme (CCTS) to build a domestic carbon market, the EU advanced its carbon border adjustment mechanism (CBAM). Designed to “put a fair price on carbon emitted during the production of carbon-intensive goods imported into the EU”, CBAM’s reporting phase ended in 2025, with full implementation beginning this month. Initial coverage targets sectors at high risk of carbon leakage, including iron, steel, cement and fertilisers.  

For India, the implications are considerable: the EU accounts for over 40% of India’s steel exports, and CBAM could reduce margins by roughly $25mn this year, rising sharply by 2030. While CBAM penalises carbon-intensive production, it also creates advantages for cleaner producers and accelerates opportunities for low-carbon business models.  

Globally, Article 6 of the Paris Agreement is reshaping carbon markets by enabling international cooperation and cross-border carbon transactions. Although decisions lie with national governments, the private sector will be directly affected through eligibility rules, project pipelines and the role of India’s National Designated Authority. India’s Article 6.2 cooperation with Japan via a Joint Crediting Mechanism signals its intent to engage in high-integrity markets and export Internationally Transferred Mitigation Outcomes (ITMOs).  

India’s long-term strategy hinges on integrating domestic instruments like CCTS with international mechanisms to create a coherent, globally aligned carbon regime—essential for delivering its net zero 2070 vision.  

COP30 Outcomes on Carbon Markets  

COP29 marked a breakthrough moment for carbon markets, with the finalisation of the rule book on carbon markets under Article 6. At COP30 in Belém, incremental progress was made. Under Article 6.2, they advanced ITMOs by agreeing to finance new crediting infrastructure and address reporting inconsistencies, though decisions on stronger transparency were deferred. Under Article 6.4, parties operationalised the UN crediting mechanism by adopting its first methodology and core standards, extending CDM transition to mid-2026 and reallocating CDM funds. Key governance issues remain unresolved. Under Article 6.8, parties adopted final guidance on non-market cooperation and upgraded the supporting UNFCCC platform, but scaling remains limited.  

Overcoming Challenges and Unlocking Opportunity  

To align effectively with global carbon markets, India must emphasise project quality, robust institutions, and strong interoperability between compliance and voluntary systems. This begins with rigorous MRV and auditable, high-integrity data—standards seen in Singapore’s Carbon Pricing Act and South Korea’s K-ETS, which require accredited third-party verification and maintain interoperable national registries. India similarly needs a secure, digitally advanced registry to track credit issuance, trading and retirement. Clear pricing signals, predictable methodologies and institutional capacity will be essential to scale high-quality projects, including in sectors beyond compliance. Strong rules preventing double-counting will further ensure market stability and international credibility.  

To operationalise CCTS effectively and ensure alignment with global carbon regimes, India could focus on six priority levers. The first being scaling supply by incentivising participation in high-quality projects through clear guidelines—on where to participate and how to maximise returns by adding revenues from carbon markets—especially for the private sector.   

The second focus area should be facilitating demand through value realisation and international market access to both sub-national level governments and the private sector.  

Another important priority lever is enabling interoperability between compliance and voluntary markets based on financing obtained and demarcation of credits in lieu of the same.  

Then comes ensuring integrity by supporting high-quality verification of projects through a seamless ecosystem development between different stakeholders: carbon credit generators, verifiers and policy makers.  

Establishing a proper institutional framework should also be a priority area for efficient policy implementation and nurturing the market involving all stakeholders.  

Lastly, the government should activate the private sector through adequate sensitisation interfaces or platforms enriching innovation, forming new methodologies and spurring investments. 

All these factors will determine to what extent India can unlock both domestic and international value. The country’s economic and climate ambition continues to grow. As one of the world’s fastest-growing major economies and an increasingly influential voice in the global climate regime, we have a significant opportunity to shape the future of carbon markets and make a mark as the voice of the Global South.  

(Kulkarni is Partner and Associate Director, Boston Consulting Group, while Banerjee is Associate Director at the firm. The views expressed are personal.)