How the New Indian Carbon Market Learns from Others

In today's guest article, carbon offsetting expert Asheer Rahman explains how India's new carbon market can learn from positive developments elsewhere - while avoiding potential pitfalls.

Source: Times of Agriculture

India’s journey to launch a national carbon market is a bold step that reflects both urgency and ambition. For a country that must balance its rapid development with pressing climate goals, this move signifies a shift in how businesses and industries approach emissions. Having worked closely with carbon offsetting and sustainability initiatives across various regions, it’s clear that India’s effort has the potential to be transformative—if it learns from past mistakes and global successes.

India’s new Carbon Credit Trading Scheme (CCTS) builds on its experience with the Perform, Achieve, and Trade (PAT) scheme, a program designed to improve energy efficiency in heavy industries like steel and cement. While PAT achieved some progress, it struggled with issues like setting unambitious targets, an oversupply of credits, and weak enforcement. The lessons from this program have shaped India’s realization that ambitious goals, transparent systems, and robust penalties are non-negotiable for a meaningful carbon market.

Global examples offer valuable lessons as well. Europe’s Emissions Trading System (EU ETS) initially floundered due to oversupply and low credit prices, which undermined its purpose. Over time, mechanisms like a market stability reserve and auction price floors helped bring structure and predictability. India’s carbon market can benefit from these strategies, ensuring prices are high enough to drive real change without creating volatility that scares off participants.

California provides another useful model with its cap-and-trade program, which started by giving industries free allowances to adapt before gradually shifting to auctions. This phased approach offered businesses breathing room while keeping them accountable—a balance India could replicate to avoid overwhelming its industries.

At the same time, cautionary tales like China’s carbon market are reminders of what can go wrong. Problems like data manipulation and inadequate penalties have eroded trust in their system. India must ensure its carbon market maintains integrity through strong verification, independent audits, and public reporting to prevent any perception of unfairness or fraud.

One of the most interesting challenges for India will be including micro, small, and medium enterprises (MSMEs). These businesses often lack the resources and technical capacity to participate in complex systems like carbon trading. Here, India could innovate by creating cooperatives where MSMEs can pool their efforts and resources. This way, smaller businesses aren’t left out of the market’s benefits and can contribute to collective emission reductions.

On the global stage, the Indian Carbon Market could also help shield the country’s industries from carbon border taxes, like the European Union’s Carbon Border Adjustment Mechanism (CBAM). By demonstrating credible emission reductions through a well-functioning carbon

market, Indian exporters could gain recognition for their efforts and avoid punitive trade barriers.

The road ahead won’t be without its challenges. Collecting reliable data across diverse sectors, addressing inter-state disparities in industrial emissions, and ensuring that no group is disproportionately burdened will require thoughtful planning and constant adaptation. The integration of existing schemes, like PAT and Renewable Energy Certificates (RECs), into a unified system could streamline efforts and make the market more efficient.

What makes India’s journey especially promising is its potential to innovate. Initiatives like investing auction revenues into clean technologies for smaller businesses, developing indigenous solutions through green-tech incubators, and offering financial incentives for sustainability can set India apart. These actions will help the market not only meet its goals but also spark a broader cultural shift toward sustainability.

For India, this is more than a climate solution—it’s a chance to redefine industrial growth. Carbon markets have shown in regions like Europe and North America that they can drive innovation, reduce emissions, and align economic progress with environmental responsibility. India now has the opportunity to create a system that addresses its unique needs while setting an example for other emerging economies.

What resonates most with me is the potential for this market to be inclusive and future-focused. If India gets this right, it won’t just be building a carbon market—it will be crafting a framework for sustainable development that balances growth, equity, and environmental stewardship. It’s an exciting moment for India and one that could set the tone for how the world tackles the dual challenges of climate change and economic progress.

Asheer Rahman is an expert in Carbon Offsetting and ESG Initiatives, with experience in the US, UK, Europe, and MENA, working with climate tech startups to drive sustainable innovation. You can find Asheer on LinkedIn here.