India’s Carbon Market Strategy Under Paris Agreement

India has taken steps in 2025 to engage with international carbon markets under Article 6.2 of the Paris Agreement. The Memorandum of Cooperation signed with Japan marks a key moment in this journey. This approach allows countries to trade Internationally Transferred Mitigation Outcomes (ITMOs), promoting climate finance, technology transfer, and innovation. India’s readiness and institutional framework position it well to benefit from this emerging global mechanism.

Institutional Framework and Governance

India established the National Designated Authority for Implementation of Article 6 of the Paris Agreement (NDAIAPA) in 2022. NDAIAPA approves projects eligible for ITMO trading. The framework was updated in 2025 to reflect evolving rules under Articles 6.2 and 6.4. A Project Implementation Agency (PIA) and steering committee are planned to oversee project approval, monitoring, verification, and ITMO transfers. Embedding the Article 6.2 registry within the Carbon Credit Trading Scheme (CCTS) will ensure transparency and national control over credit tracking.

Eligible Sectors and Activities

India’s eligibility list for ITMO projects includes green hydrogen, green ammonia, sustainable aviation fuel (SAF), compressed biogas, high-efficiency industrial technologies, renewables with storage, offshore wind, solar thermal, HVDC lines, ocean energy, and carbon capture, utilisation and storage (CCUS). These sectors were chosen to attract international finance and enable technology transfer. The initial scope covers three years with provisions for expansion.

Opportunities for Climate Finance and Technology Transfer

Green hydrogen and ammonia can finance scaling of electrolysers and decarbonise export value chains. SAF and biogas support aviation sector decarbonisation. Industrial sectors like steel, cement, and chemicals can adopt advanced technologies with reduced financial risks through ITMO-linked agreements. Renewable energy projects combined with storage and HVDC infrastructure can deliver verified emission reductions. CCUS projects, especially in industrial clusters, offer new frontiers for carbon removal credits.

Policy Priorities for Implementation

India must strengthen governance by operationalising PIAs and integrating ITMO registries with CCTS. Building a pipeline of bankable projects requires fast-tracked feasibility studies and facilitation for developers to meet international MRV standards. Private sector engagement is critical, supported by blended finance and clear pricing mechanisms for ITMOs. Expanding bilateral partnerships beyond Japan to countries like Switzerland, Singapore, UAE, and South Korea will broaden market access and technology collaboration.

Strategic Importance of India’s Carbon Market Engagement

India’s active participation in Article 6.2 markets aligns with its Net Zero commitment. It promotes sustainable development alongside climate goals. It also positions India as a key player in shaping global carbon market norms. Timely and transparent implementation will determine India’s success in leveraging international cooperation for climate action.

Questions for UPSC:

1. Critically analyse the role of international carbon markets under Article 6 of the Paris Agreement in achieving global climate goals with suitable examples.
2. Explain the importance of technology transfer and climate finance in the context of India’s Nationally Determined Contributions (NDCs) and international cooperation.
3. What are the challenges in establishing robust governance frameworks for carbon credit trading? How can countries ensure transparency and integrity in such systems?
4. With reference to India, discuss the potential of renewable energy and carbon capture technologies in meeting climate targets and promoting sustainable development.

Answer Hints:

1. Critically analyse the role of international carbon markets under Article 6 of the Paris Agreement in achieving global climate goals with suitable examples.

1. Article 6 enables cooperative approaches allowing countries to trade Internationally Transferred Mitigation Outcomes (ITMOs) to meet emission targets.
2. It promotes cost-effective emission reductions by enabling countries with lower abatement costs to sell credits to others.
3. Examples – India-Japan MoC under Article 6.2 facilitates technology transfer and climate finance through carbon trading.
4. Supports innovation and scaling of clean technologies like green hydrogen, sustainable aviation fuel, and CCUS.
5. Challenges include ensuring robust MRV (monitoring, reporting, verification) and avoiding double counting of emissions reductions.
6. Overall, international carbon markets incentivize global cooperation, mobilize finance, and accelerate climate action beyond national borders.

2. Explain the importance of technology transfer and climate finance in the context of India’s Nationally Determined Contributions (NDCs) and international cooperation.

1. India’s NDCs set ambitious emission reduction and renewable energy targets requiring advanced technologies and substantial investment.
2. Technology transfer under Article 6 helps India access cutting-edge low-carbon solutions like green hydrogen, offshore wind, and CCUS.
3. Climate finance mobilized through carbon markets reduces upfront costs and financial risks for clean energy projects.
4. International cooperation enables knowledge sharing, capacity building, and innovation diffusion aligned with India’s development goals.
5. Ensures sustainable development by integrating socio-economic benefits alongside emission reductions.
6. Facilitates India’s transition to Net Zero while maintaining economic growth and energy security.

3. What are the challenges in establishing robust governance frameworks for carbon credit trading? How can countries ensure transparency and integrity in such systems?

1. Challenges include avoiding double counting, ensuring accurate MRV, and aligning domestic and international registries.
2. Complexity in project approval, monitoring, and ITMO allocation demands strong institutional mechanisms.
3. Need for clear governance structures like National Designated Authorities (e.g., India’s NDAIAPA) and Project Implementation Agencies (PIAs).
4. Embedding registries within unified platforms (e.g., India’s Carbon Credit Trading Scheme) ensures traceability and sovereignty.
5. Transparent pricing norms, stakeholder engagement, and inter-ministerial coordination strengthen credibility.
6. Regular audits, public disclosure, and alignment with international standards build trust among buyers and sellers.

4. With reference to India, discuss the potential of renewable energy and carbon capture technologies in meeting climate targets and promoting sustainable development.

1. Renewable energy sectors like offshore wind, solar thermal, and renewables with storage offer scalable emission reductions.
2. Green hydrogen and ammonia can decarbonise export-oriented industries and serve as clean energy carriers.
3. Carbon Capture, Utilisation and Storage (CCUS) enables industrial clusters to reduce hard-to-abate emissions and generate carbon removal credits.
4. These technologies attract international finance and technology transfer via Article 6.2 mechanisms.
5. Promote local employment, energy security, and infrastructure development, aligning with sustainable development goals.
6. Integration into India’s carbon market framework ensures verified emission reductions and long-term climate benefits.