India has turned its climate commitments into action through a broad and increasingly sophisticated policy architecture.
At the centre sits the Carbon Credit Trading Scheme (CCTS), its first explicit carbon-pricing mechanism that establishes emissions-intensity benchmarks for energy-intensive sectors such as cement, aluminium, petrochemicals, refining, pulp and paper, and textiles. Firms performing better than the benchmarks earn tradable carbon credits while underperformers must purchase credits or face penalties.
The emission intensity-based approach of the CCTS is an intelligent policy choice for a fast industrializing economy. Unlike absolute emission caps such as those followed by the EU, which fix total emission targets regardless of output, intensity targets encourage efficiency improvements while allowing production to expand.
Beyond a carbon market, India has steadily built a wider climate policy ecosystem: renewable consumption obligations to drive renewable energy uptake; extended producer responsibility regimes to promote recycling; the National Electric Mobility Mission and the National Solar Mission; investments in battery and grid-scale energy storage; green credit schemes; and climate finance taxonomy to guide private capital towards sustainable investment.
These highlight India’s challenge of addressing the trade-climate interface. While the EU and UK agreements include sustainable development chapters, they do not adequately reflect India’s proactive climate efforts.
What also remains unaccounted for are the significant implicit carbon costs that Indian industry already bears in the form of renewable obligations, coal levies and fossil fuel taxes. In the absence of a global standard, there is no realistic way in which the effective carbon price paid can be ascertained.
While India has built a strong foundation for its climate goals, there is an urgent need for closer alignment between climate outcomes, industrial competitiveness and trade agreements.
India’s trade-pact strategy needs a more forward-looking and equitable approach. Trade-pact partners need to recognize diverse decarbonization pathways and acknowledge India’s approach.
Negotiations could link market access to climate-technology transfer, clean manufacturing investment and integration into low-carbon value chains. The India-EFTA deal provides a useful precedent, with tariff reductions tied to investment commitments.
On domestic efforts, India can build on existing production-linked incentives (PLI) by piloting ‘green PLIs’ that reward reductions in carbon intensity, turning decarbonization into a competitive advantage.
India should also accelerate low-carbon industrial hubs through infrastructure, fiscal incentives and faster approvals. In parallel, India’s carbon framework should harmonize implicit carbon costs across regulations with its carbon-pricing mechanism.
India must also engage more actively in shaping emerging global carbon markets and climate-trade governance to avoid remaining a rule-taker. India has stayed out of the World Trade Organization initiative of Trade and Environment Sustainability Structured Discussions and has not demonstrated active participation in coalitions like Brazil’s Open Coalition and the Integrated Forum on Climate Change and Trade.
Participation is important to shape emerging norms in a climate-linked trade environment. Along with other Global South economies, India should push for an approach that recognizes economy-wide decarbonization efforts, which are the basis for commitments on nationally determined contributions under the UN Framework Convention on Climate Change, rather than having to adapt to the EU’s carbon border measures, which privilege emission trading systems.
As climate policy gets entangled with trade, geopolitics and industrial policy, the future will belong to countries that integrate climate ambition with energy security and economic transformation.
These are the authors’ personal views.
The authors are, respectively, a Mumbai based economist, and partner, Clarus Law Associates.