Paper: GS – III, Subject: Environment and Ecology, Topic: Indian Initiatives, Efforts and Commitments, Issue: India’s Carbon Market (ICM).
Context:
The 2025 EU-India Agenda proposes linking India’s Carbon Market (ICM) with the EU’s Carbon Border Adjustment Mechanism (CBAM) to promote fair global carbon pricing and avoid double taxation for exporters, but its success hinges on resolving key institutional, technical, and political challenges.
Key Highlights:
Significance of Linking ICM with CBAM:
- Rewards Early Decarbonisation: Companies that reduce emissions ahead of time will benefit through lower border taxes, encouraging green competitiveness.
- Global Cooperation Model: Represents a potential template for North-South climate cooperation, bridging industrialised and developing economies through carbon pricing.
Challenges in India’s Carbon Market (ICM):
- Underdeveloped Market Architecture:
- The Indian Carbon Credit Trading Scheme (CCTS) is still evolving.
- Unlike the EU’s Emissions Trading System (ETS), India’s system:
- Lacks robust cap-setting and auction mechanisms.
- Is currently based on intensity improvements or project-based offsets, not absolute emission caps.
- The EU requires tonne-for-tonne carbon accounting, which India’s current framework cannot yet provide.
- Absence of Institutional Equivalents:
- The EU has independent regulators and verified emissions registries ensuring market integrity.
- India lacks a similar independent verification authority, making it difficult for the EU to trust Indian credits.
- Without strong governance and transparency, EU regulators may not accept Indian carbon prices for CBAM deduction.
Carbon Price Disparity and CBAM Linkage Challenges:
Linking India’s Carbon Market with the EU’s CBAM offers a major step toward fair North-South climate cooperation, but without stronger institutions, aligned prices, and clear policies, it may remain a symbolic move rather than a real success.
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