India set to benefit from carbon market agreement at COP29

An agreement on the operationalisation of the carbon market was reached at the recently held CO29 climate change negotiations and is likely to expedite the shaping of the domestic carbon market in India, say experts.

Indian companies can benefit from participating in these markets by selling carbon credits or offsetting their emissions. However, developing robust methodologies and tools for implementation is something that the stakeholders globally, including India, are looking forward to.

Ending years of stasis, a deal on government-to-government carbon markets was agreed at COP29. The newly-adopted rules under Article 6 of the Paris Agreement create two different types of markets, where countries will trade emissions reductions and discount them from their national climate plans.

Manish Dabkara, Chairman and Managing Director, EKI Energy Services Ltd, says the agreement on the operationalisation of Article 6 carbon markets sets a strong foundation for achieving global climate goals and paves the way for a more transparent and credible carbon market.

“For India, this development offers limitless potential to shape and strengthen the country’s domestic carbon market under process,” Dabkara tells Business Today. He further points out that alignment with uniform global standards and modalities, under Article 6, will enable India’s Carbon Credit Trading Scheme to align with international best practices.

“This alignment will enhance the fungibility of Indian carbon credits across borders, reduce quality uncertainties, and attract financial institutions to invest in the market. With fewer boundaries between compliance and voluntary markets, there is also an opportunity for better price discovery and indexing, improving market efficiency and stability,” he says.

India is set to operationalise a carbon trading market by FY27 but needs to define the terms, structure, and compliance measures. The delay was also attributed to the non-finalisation of rules under Article 6. The Bureau of Energy Efficiency (BEE) has launched guidelines to shape the future of the Indian Carbon Market (ICM).

The market under Article 6.2 regulates bilateral carbon trading between countries while Article 6.4 creates a global crediting mechanism for countries to sell emissions reductions.

Hemant Jain, President, PHDCCI, says the measurable phenomenon of Article 6 at COP29 symbolises a vital footstep to global climate action where our nation has a crucial role to play in the global carbon market.

“I believe Indian companies, especially those in energy-intensive sectors like manufacturing, aluminum, cement, and steel, can benefit from participating in these markets by selling carbon credits or offsetting their emissions. However, to do so, they must adopt standardised carbon accounting practices that are recognised globally,” Jain tells BT.

He further says that to ensure that the country capitalises on the full potential of Article 6, nations will need to implement a comprehensive, inclusive carbon market design.

“This includes developing strong rules and principles, nurturing collaboration between public and private sectors, and providing technical support for businesses. Proposed functional carbon markets enable Indian firms to participate in global trade on an equal footing. However, achieving these goals will require careful design and implementation of the CCTS (carbon credit trading scheme) for its carbon market that will complement the country’s broader decarbonisation strategy,” he adds.

By adopting and internalising these standards, India’s carbon market has the potential to position itself as one of the most important players in global climate finance, driving sustainable development and supporting its ambitious climate goals.