India is developing a national carbon market to reduce greenhouse gas emissions. An ambitious and well-designed carbon market can encourage cost-efficient, low-carbon transformation of the Indian industry, while unlocking financing and technology transfer opportunities for micro, small, and medium enterprises.

A carbon market, however, is complex to implement and can involve significant transaction costs. Poor design can also lead to inequity, inefficiency, loss of competitiveness, carbon leakage, and a lack of compliance.

This report provides design and implementation recommendations for an effective carbon market in India. These findings draw from international carbon markets and India’s experience with market-based mechanisms, brought together with practical insights and industry feedback from a carbon market simulation.

A well-designed carbon market can reduce emissions reduction costs for the industry, increase the emissions coverage of India’s existing market-based mechanisms, and improve administration and compliance by potentially subsuming the existing market-based mechanisms into a single framework.

Beyond good design, the critical elements for a successful carbon market include tailored capacity across different stakeholders, evolving design through ongoing simulations and pilots, engagement with industry to build stakeholder buy-in, and complementary policies to minimize competitiveness and distributional impacts of carbon pricing.

Preview image by Amit Chivilkar