Navigating India's Emission Trading System: An analysis of policy evolution, implementation imperatives, and critical review for energy sustainability pathway

Abstract

India confronts the dual imperative of addressing climate change vulnerability while pursuing economic development to alleviate millions from poverty. India's Nationally Determined Contributions (NDCs) signal a commitment to this balance, and market-based instruments like the Perform, Achieve, and Trade (PAT) scheme and Renewable Energy Certificate (REC) mechanism previously supporting these NDC targets. The impending Indian Carbon Market (ICM), an emission-intensity-based Emission Trading System (ETS), marks a paradigm shift by directly targeting emission intensity reductions—an area less explicitly addressed by prior energy-climate policies—and consolidating existing mechanisms. Catalysed further by international developments such as the EU-Carbon Border Adjustment Mechanism (EU-CBAM) and evolving global carbon market dynamics, India's move towards a robust domestic compliance and offset framework is timely. This extensive critical review utilises a mixed-methods approach, including narrative and systematic review, through examining policy documents, academic literature, and official data to thoroughly explore the ICM's policy evolution, structural design, operational procedures, governance, and strategic pathways for the future. By synthesising lessons from India's experience with antecedent market instruments (Clean Development Mechanism, PAT, REC) and relevant international ETS benchmarks, this study identifies significant implementation imperatives crucial to the ICM's success. The analysis reveals that the ICM risks inheriting the systemic failures of its precursors—principally structural credit surpluses and weak enforcement—which necessitates a robust design to ensure it can function as an effective policy instrument for sustainable development. The analysis formulates concrete policy recommendations emphasising robust, frequently revised emission targets to stimulate investment in clean energy technologies, a transparent transition towards fully market-based ETS operations, and strengthened governance structures for credible Measurement, Reporting, and Verification (MRV) processes. The findings provide practical recommendations for policymakers, researchers, and practitioners involved in the creation and execution of energy policies and carbon market structures within developing nations, chart pathways to meet the seventh Sustainable Development Goal (SDG 7) of affordable and clean energy by 2030.