“Such a method would not only push corporations to adopt more environmentally friendly practices but would also allow India to capitalise on its tremendous renewable energy potential. By monetising carbon reduction initiatives, India can attract foreign investment, stimulate innovation, and increase its worldwide competitiveness in the renewable energy sector,” he says.
And this will have a multiplier effect, Gupta says. Encouraging enterprises to adopt greener technologies fosters job creation in the clean energy industry and supports India’s overall development goals.
However, building a strong carbon credit mechanism in India has proven to be quite challenging. Gupta points out that a significant impediment is a lack of integration among diverse stakeholders, such as industry, regulators, and market participants.
“Another problem is ensuring the credibility and standardisation of carbon credits. India must implement a globally recognised methodology for monitoring and verifying emissions reductions. Without this, the market risks being weakened by low-quality or fraudulent credits, eroding investor trust,” he says.There is another issue of resource constraints. While large companies can afford to have the required resources for decarbonisation, small firms often lack these.Adds Kamlesh Kaushik, Co-founder & CEO, Mufin Green Infra Ltd: “Industries, particularly in the MSME sector, lack awareness and capacity to participate effectively in carbon markets. Further, monitoring, reporting, and verifying emissions reductions is complex and resource intensive. This also makes it challenging to ensure transparency and trust in the system.”
Experts say that currently a lot of credits are often based on self-reported data, with independent auditors checking emissions reductions. “This lack of strict oversight can lead to errors, over-reporting, or even duplicate credits. Without a central verification system, buyers may not trust the value of these credits. The problem is made worse by low awareness and scattered policies, making it harder for industries to adopt carbon credits,” says Aditi Balbir, Co-founder, EcoRatings, a consultancy firm utilising GenAI for sustainability solutions.
While initiatives like the Energy Conservation (Amendment) Act 2022 have laid the groundwork, Kaushik says, “A cohesive and enforceable national policy for carbon markets is still missing.”
There are also sectors like steel and cement, which require high costs for transitioning to greener technologies, making participation in carbon markets financially daunting, he points out. Another challenge is the regulatory co-ordination. Confusion over the roles of central and state authorities, according to Kaushik, can create bottlenecks in implementation and enforcement.
Experts have now pinned their hopes on the upcoming Budget on February 1. They call for a systematic approach towards creating a carbon credit market in India, which will include a range of support mechanisms encouraging all industries to participate.
Gupta of Apollo Energy says that beyond allocating cash for basic infrastructure, such as a national carbon registry, the government can implement policies that encourage green investments. “This involves providing tax breaks to businesses that implement carbon capture devices or actively participate in renewable energy projects. In addition, the Budget should set out funds for capacity-building programmes. For example, establishing centres of excellence for carbon market research and offering financial aid to SMEs for technology adoption can dramatically increase involvement in the carbon ecosystem,” he says.
He states that to ensure a level playing field, the government can implement programmes that provide concessional financing for projects in rural and semi-urban areas. These areas frequently lack the resources to conduct large-scale emission reduction programmes, but they have enormous potential for projects such as afforestation and renewable energy installations.
Kaushik of Mufin Green Infra urges the government to announce a comprehensive framework for a compliance-based carbon market, with clear timelines and guidelines. This, he says, would provide much-needed clarity to industries and investors. “Further, promote linkages between India’s carbon credit mechanisms and international markets, enhancing the tradability of credits and ensuring global competitiveness. Facilitate collaborations to build robust trading platforms and create a marketplace for carbon credits,” he says.
Technology can also optimise the carbon credit market. Balbir of EcoRatings points out that using technology like blockchain to tokenise carbon credits would improve transparency, prevent duplication, and make trading easier. “A government-backed digital registry, along with clear rules on disclosures, third-party verification, and compliance, would boost trust and encourage more businesses to participate,” she says.
It is also imperative to foster collaboration between industries and academia to develop low-carbon technology that can help India move forward into a more sustainable future. “A forward-looking Budget that prioritises carbon markets is critical to accomplishing these objectives and firmly establishing India’s net-zero trajectory,” says Gupta.
