A case for joining the global carbon coalition

Why in the News

India’s Carbon Credit Trading Scheme (CCTS) is now live, but India has stayed out of the Open Coalition on Compliance Carbon Markets (OCCCM), launched by the European Union, China and Brazil in May. The question is whether India can afford to stay outside the group writing shared carbon market rules.

What is the OCCCM?

1. What it is: The OCCCM brings together countries running compliance carbon markets, where governments set emission targets and firms trade credits to meet them. It works like a standards club for these markets.
2. Founders and members: Launched in Florence, it added Germany and New Zealand first, then Canada, France, Norway, Singapore, Turkiye and the United Kingdom.
3. First work plan: Adopted at Wuhan on September 14, it covers carbon pricing, carbon accounting, high-integrity offsets, credits for verified cuts made elsewhere, and monitoring, reporting and verification (MRV), the checks proving an emission cut is real.
4. The takeaway: Shared carbon market rules will take shape in this coalition, and India, now running a market of its own, is not at the table.

Where does India’s own carbon market stand?

1. Scheme now live: The CCTS, on paper since 2023, now runs with binding targets, penalties and real companies.
2. First compliance reports: Nearly 500 companies across seven industrial sectors filed their first compliance reports in July.
3. Credits and trading: The first credits are due in October, with trading on power exchanges expected between November and January.
4. Climate goals: The CCTS is meant to deliver India’s Nationally Determined Contribution (NDC), its climate pledge under the Paris Agreement, and the 2070 net zero goal.

Why should India join?

1. Spread of carbon pricing: Over 50 countries price carbon, and more will as the world moves to net zero, so most emissions may eventually carry a price.
2. Value of a carbon price: It cuts emissions at the lowest cost to the economy, which matters for the global South. It also raises revenue for budgets strained by heatwaves and floods.
3. Linkage revenue: Linking the CCTS with markets that set stricter targets would let their firms buy Indian credits, bringing revenue to India.
4. CBAM-style coalitions: India must prepare for a club built around the EU’s Carbon Border Adjustment Mechanism (CBAM), a charge on imports matching the carbon price EU producers pay.
5. Climate clubs report: A report for a council convened by the COP30 President sketches possible CBAM coalitions. Members could share one carbon price or set different ones, with incentives for members and penalties for non-members.

Does joining carry risks?

1. No binding targets: The coalition aligns compliance markets and carbon pricing across countries. It enforces no mitigation targets or other decisions.
2. Rules still to be made: Members will take critical decisions through high-level meetings, working groups and a Secretariat. An outsider can only respond to them.
3. Developing country members: Brazil is a founder and other developing countries are joining, a reassurance for India.
4. CBAM left unnamed: The coalition avoids naming CBAM, a term that provokes sharp reactions in climate talks. Its MRV and accounting work still prepares members for CBAM.

Challenges

1. Low domestic price: India’s carbon price, around $10 a tonne, is far below the EU’s, so linkage and CBAM credit gains stay small.
2. Intensity targets: The CCTS limits emissions per unit of output, not total emissions, which partner markets may not treat as equivalent.
3. Stance on CBAM: India has called CBAM a unilateral trade barrier inconsistent with common but differentiated responsibilities (CBDR), the principle that richer countries carry more of the burden, so closer alignment carries political cost.

Way Forward

1. Join early: The government should join the OCCCM soon to shape its MRV and offset rules.
2. Robust MRV: The Bureau of Energy Efficiency (BEE) should align India’s verification standards with coalition norms.
3. Move to absolute caps: Shift from intensity targets to absolute caps as the economy matures.

Conclusion

India has built a carbon price, and the question is whether it helps write the rules that decide how that price is valued abroad. What to watch is whether India joins the coalition before its working groups settle verification and offset standards.

About India’s Carbon Credit Trading Scheme

1. Legal basis: Notified by the Ministry of Power under the Energy Conservation Act, 2001, as amended in 2022.
2. Compliance mechanism: Obligated firms that beat their emission-intensity targets earn tradable Carbon Credit Certificates. Those that fall short must buy or surrender them.
3. Institutions: The BEE administers the scheme and issues credits, and the Central Electricity Regulatory Commission (CERC) regulates trading.

Matching Previous Year Question

“[2016] The term ‘Intended Nationally Determined Contributions’ is sometimes seen in the news in the context of (a) pledges made by the European countries to rehabilitate refugees from the war-affected Middle East (b) plan of action outlined by the countries of the world to combat climate change (c) capital contributed by the member countries in the establishment of Asian Infrastructure Investment Bank (d) plan of action outlined by the countries of the world regarding Sustainable Development Goals ANSWER: (b)”