COP 29 was celebrated as a breakthrough event for important agreements to operationalize carbon markets under a centralised mechanism to enable country-to-country trading of emissions and discount this from national climate plans. These markets—designed to allow companies, governments and individuals to trade credits that offset one tonne of CO2—seem like a silver bullet for tackling climate change. However, the Voluntary Carbon Market (VCM), once a $2 billion global sector, has now shrunk to $723 million in 2023 with carbon credits trading for prices as low as $6.5 per tonne. This is a far cry from the prices needed to spur meaningful climate action. But India stands out in the midst of this contraction.

India contributed 17% to global carbon credits in 2023, totaling $35.94 million. Predictions for the future remain optimistic, with the global VCM expected to reach $50 billion by 2030, and some even forecasting a potential $1.1 trillion market by 2050. However, India’s carbon market is riddled with systemic flaws that threaten to derail any progress the market might make in helping address the climate crisis.

Illusion of Progress

India’s official Carbon Credit Trading Scheme (CCTS), notified in June 2023, seemed like a step in the right direction. It brought together ministries from power, environment, finance, and renewable energy, aiming to create a holistic approach to carbon trading. The Bureau of Energy Efficiency (BEE) was assigned to administer the market and the Grid Controller of India Limited (GCIL) was appointed to act as a registry. The Central Electricity Regulatory Commissions (CERC) was also named as the regulator.

But the devil, as always, is in the details. Despite the CCTS being amended in December 2023 to include the offset mechanism, the framework still lacks crucial elements like robust principles of “additionality”— ensuring emissions cuts are real, and wouldn’t have occurred otherwise — and “permanence”, the bedrock of credible carbon markets. Also, permitting carbon credit activities to obtain green credits under India’s Green Credit Program (GCP) violates the important principle of “no double counting”, potentially weakening the impact of both programs. This leaves the system vulnerable to accusations of greenwashing, as carbon emitters could continue to buy cheap credits without making any substantial changes to their business models.

Learning the Wrong Lessons

We don’t have to look too far to see how this could go wrong. The Perform, Achieve, Trade (PAT) scheme, aimed at reducing energy intensity, and the Renewable Energy Certificate (RECs), introduced in 2008 and 2010 respectively, both offer valuable lessons. While both schemes have had their successes, they also revealed deep flaws in India’s approach to carbon markets. The PAT scheme was plagued by delays in issuing certificates, weak baseline targets and trading prices that barely moved above the floor price. RECs suffered from similar issues, including legal disputes and non-compliance, resulting in unsold certificates that piled up over time.

The CCTS's focus on energy intensity aligns with India's NDCs but overlooks the need for absolute emissions targets, crucial for limiting overall emissions growth in line with global climate goals.

Unresolved Land and Agriculture Challenges

There is a significant land-use component to India’s carbon market strategy, and here too, unresolved questions abound. The much anticipated Bharat Methodologies, which will dictate how carbon credits are awarded for land use, have yet to be released. Projects registered on global platforms like Gold Standard and Verra are already being re-examined for compliance with India’s evolving framework.

The Ministry of Agriculture’s Voluntary Carbon Markets Framework, released in 2023, caps direct farmer benefits at ₹1000 per credit, with only 2-6 credits generated from one hectare. Most Indian farmers hold less than 2 hectares of land, this barely makes a dent in their income, calling into question the viability of these projects. The developer-led model, which gives developers carbon rights while farmers retain land rights, also raises bigger questions about land ownership, permanence, and control.

Even more troubling are the looming challenges of afforestation and institutional forestry. These projects, while aimed at sequestering carbon, risk becoming a new form of land grab. Farmers may technically retain their land rights, but when permanence is required for carbon credits, the de facto control of the land could shift to developers, reducing local communities’ autonomy.

Therefore, the government must ensure fair benefit-sharing in agricultural carbon projects by increasing credit generation per hectare to boost smallholder profitability. Legal frameworks must protect landowners’ rights, keeping carbon rights with local communities while developers play a supporting role. Projects should prioritise biodiversity and local livelihoods for long-term viability.

India is at a critical juncture in its carbon market journey. The world is watching and the potential is undeniable. If India can address the structural flaws in its carbon market—by establishing rigorous principles of additionality, ensuring permanence, learning from past mistakes, and ensuring fair benefit-sharing particularly in agriculture carbon projects—it could become a leader in global climate action. But without these reforms, the market will be little more than a facade, allowing polluters to continue business as usual while wrapping themselves in a green cloak of carbon credits.

The global carbon market might be a trillion-dollar opportunity by 2050. India can play a meaningful role if it fixes the foundations first. The world doesn’t need more promises, it needs real, measurable action—and the time to act is now.