Regulation
Does India's carbon market stop Europe from buying Indian carbon credits?
A domestic carbon price does not close the door to credit exports. It makes India choose more carefully what it sells, and at what price.
Last week I wrote that the West is easing its sustainability rules while India is starting to price carbon. One reader raised a fair question. If India now has its own carbon market, does that stop Europe from buying carbon credits from India?
It is a good question, because it mixes up two things that often travel together in the news: a carbon price at home, and the trade in carbon credits across borders. My short answer is no. A domestic carbon market does not stop exports. But it does change what India is willing to sell, and at what price.
Europe is not buying Indian credits today
Start with the present. Europe is not buying carbon credits from India right now, so there is nothing for India’s market to stop.
This was not always the case. Under the Kyoto Protocol, India was one of the largest suppliers of credits from the Clean Development Mechanism (CDM), and many of these ended up in the EU Emissions Trading System. That door closed in 2021. Since then, the EU ETS has not accepted international credits, and the EU must reach its 2030 climate target with cuts made inside Europe.
Europe will start buying again, but on new terms
The picture changes after 2035. In its 2040 climate target, the EU agreed to cut net emissions by 90% compared with 1990, and to allow up to 5 percentage points of that effort to come from high-quality international credits. These credits can count from 2036, with a pilot phase before that. The detailed rules on quality, origin and use are still being written.
The key point is how these credits will be bought. They will come through Article 6 of the Paris Agreement. Under Article 6, a credit can only move from one country to another if the host country authorises it and adjusts its own emissions accounts so the same tonne is not counted twice. This is called a corresponding adjustment.
So whether India sells credits to Europe after 2036 depends on a bilateral agreement and on India’s own authorisation of each credit. It does not depend on whether India has a domestic carbon market. India already has Article 6 agreements with Japan and South Korea, and it has published a list of activities for which it is willing to export credits.
The two markets do different jobs
India’s Carbon Credit Trading Scheme (CCTS) gives heavy industry legally binding targets to cut emission intensity. Plants that beat their targets earn certificates. Plants that miss them must buy certificates. These units are designed for compliance at home, not for sale abroad.
Article 6 credits are a separate track, for projects that India chooses to open to foreign buyers. The two can co-exist, in the same way that a country can have a domestic electricity market and still export power to its neighbours.
And CBAM does not take credits anyway
There is also some confusion with Europe’s Carbon Border Adjustment Mechanism (CBAM). CBAM does not let an exporter pay its border bill with carbon credits. It only allows a deduction for a carbon price that was actually paid in the country of origin. On the trade side, then, India’s carbon market helps Indian exporters. It does not take any credit market away from them.
Where the argument has a point
There is one part of the argument that I think is right.
Every credit India exports needs a corresponding adjustment. This means India gives up that reduction in its own climate accounts. When reductions were cheap and India had no binding domestic targets, selling them abroad looked like free money. Now that India is building its own targets and its own market, cheap reductions become more valuable at home. India needs them for its own climate goals.
India already acts on this logic. Its list of activities for export focuses on costly and new technologies, such as energy storage, green hydrogen, sustainable aviation fuel and carbon capture. Many of the cheaper project types that were common in the voluntary market, such as plain solar or onshore wind, are not on the list. The message is clear: foreign buyers are welcome, but they should pay for the reductions India would find hard to make on its own.
So a fairer version of the argument is this: India’s carbon market will shrink the supply of cheap Indian credits for Europe after 2036. It will not stop sales.
Why this matters for Indian business
For Indian companies, this is good news more than bad news. It means:
- The low-hanging fruit stays at home. Efficiency gains and cheap renewable power will count towards CCTS targets and India’s own climate goals, rather than being sold abroad at low prices.
- Foreign money goes to harder technologies. Companies that work on storage, green hydrogen or carbon capture may find European and Asian buyers willing to fund them through Article 6.
- Good data pays twice. The same plant-level emissions data that CCTS requires is what European buyers and CBAM ask for. A company that measures well is ready for both markets.
The bigger point
The old CDM model treated developing countries as a place to buy cheap reductions for richer countries. Many of those credits were later criticised for weak quality, and much of the value flowed out of the host country.
A domestic carbon market changes that bargain. It gives India a price for its own carbon, and a reason to decide carefully what it keeps and what it sells. That is not the end of carbon trade between India and Europe. It is the start of a more equal one.