Reforms to supercharge India’s carbon credit export potential

As global economies strive for a sustainable, low-carbon future, the demand for carbon credits will increase substantially. India, with its vast potential for carbon reduction and renewable energy projects, is well positioned to play a critical role in this growing market. By developing a strong carbon credit trading system underpinned by clear and transparent policies, India can establish itself as a leading global supplier of carbon credits while advancing its domestic environmental goals. However, this ambition requires comprehensive policy reform and strict verification protocols to ensure the credibility and effectiveness of the market.

India’s carbon market is a developing cornerstone of its broader environmental strategy. Central to this effort is the recently launched Carbon Credit Trading Scheme (CCTS), which establishes the Indian Carbon Market (ICM) and facilitates the trading of carbon credit certificates. Under this scheme, entities earn credits by reducing greenhouse gas (GHG) emissions below a set benchmark, and these credits can be traded to entities that need them to meet their own reduction targets. This scheme complements existing initiatives such as the Perform, Achieve and Trade (PAT) scheme and the Renewable Energy Certificate (REC) scheme, both of which aim to reduce emissions in the energy and industrial sectors.

Alongside these efforts, India has introduced initiatives such as Mission Life and the Green Credit Programme, underscoring its commitment to sustainability. However, creating a single carbon market presents distinct challenges. India needs to streamline its regulatory framework and increase transparency and verification processes for its carbon credits. These steps are critical to building a base for carbon credit exports, potentially positioning India as a major player in the global carbon market.

India’s carbon credit market faces several key challenges that hinder its growth and credibility. One of the main problems is the lack of a central authority to oversee carbon credit regulations. Various government agencies regulate different aspects of the market, leading to fragmentation and inefficiency. Without a unified regulatory framework, uncertainty permeates the market, diminishing investor confidence and slowing potential market development.

In addition, the current market lacks standardized protocols for carbon credit verification, leading to inconsistencies in credit quality. The verification process often requires sensitive data, raising privacy concerns and increasing the potential for corruption. In addition, high verification costs can be prohibitive for small-scale projects, limiting their market participation. The resulting lack of transparency and consistency erodes investor confidence and reduces the attractiveness of India’s carbon credits on the global stage.

To address these challenges, India should establish a streamlined, centralized authority to oversee the carbon credit market. This authority would be responsible for developing clear and comprehensive regulations governing the generation, trading and export of carbon credits. By promoting a stable and predictable regulatory environment, the government can attract both domestic and international investors, providing a crucial boost to market growth.

Effective carbon credit policies should prioritize the development of verification standards that align with international frameworks such as Verra and the Gold Standard. These well-enforced standards ensure that loans generated in India are in line with global best practices, enhancing their appeal to foreign buyers. In addition, alignment with international standards enhances the credibility of India’s carbon credits, positioning the country as a reliable source of high-quality carbon offsets in the global market.

For India’s carbon market to succeed, transparent verification processes are essential. Verification protocols must be standardized to ensure consistent quality across all carbon credits. A rigorous verification process that includes public disclosure of project information will increase accountability and allow stakeholders to verify project performance. Additionally, by leveraging data analytics and technology, India can improve the effectiveness of its carbon credit initiatives by enabling real-time tracking of emissions reductions and continuous monitoring of project outcomes.

Also, investing in data sharing platforms can further improve transparency and facilitate carbon credit transactions. A centralized data repository would allow stakeholders to access project information, verification data and transaction records, building trust in the market. In addition, public disclosure of verification methods can help mitigate the risks of fraud, double-counting and other problems that have undermined carbon markets elsewhere.

To attract early adopters and spur innovation, the Indian government could provide incentives for carbon reduction projects. Tax breaks, subsidies and other financial incentives could help boost participation in the carbon credit market, especially for smaller projects that may struggle with the costs associated with verification. These incentives could unlock the potential of a wide range of carbon reduction projects, from renewable energy installations to reforestation initiatives.

Moreover, the government can invest in training programs to equip stakeholders with the necessary knowledge and skills to effectively participate in the carbon credit market. This includes project developers, verifiers and decision makers, who all play critical roles in the market. Building capacity in the industry will ensure that projects are designed and managed in accordance with best practices, enhancing the credibility of India’s carbon credits and instilling greater investor confidence.

By addressing these challenges, India can expand its carbon credit market and take advantage of growing global demand for carbon offsets. Establishing a reliable and transparent market for carbon credits will enable India to capitalize on its renewable energy and climate finance initiatives. In addition, a strong domestic carbon market can provide the foundation for expanding exports of carbon credits, allowing India to meet international demand for offsets while reducing its own emissions.

Collaboration with other countries and international organizations involved in carbon markets could open additional avenues for India’s carbon credits. By partnering with international stakeholders, India can share knowledge, adopt best practices and access new markets for its carbon credits. Strengthening these partnerships will help India stay aligned with evolving global standards, ensuring that its carbon credits remain competitive and attractive to international buyers.

India is at a critical juncture in its carbon credit journey. With the right policy reforms and a commitment to transparency and verification, India has the potential to become a leader in the global carbon credit market. By establishing a centralized regulatory framework, standardizing verification protocols, and building an environment that encourages innovation and investment, India can create a thriving carbon credit market that not only supports its domestic emissions reduction targets, but also enables to export high-quality carbon credits.

This article is written by Shailendra Singh Rao, Founder, Creduce.