[Answered] India’s carbon credit scheme targets require economy-wide assessment, not merely entity-level. Critically analyze how this approach optimizes climate action, ensures equitable burden-sharing, and promotes sustainable economic growth.

Introduction

India’s Carbon Credit Trading Scheme (CCTS) aims to decarbonize industry through market-based incentives. For effective climate action, assessing ambition at the economy-wide level is vital over narrow entity-level evaluation.

Why Entity-Level Assessment is Inadequate

1. Fragmented Picture: Emissions intensity may rise in some entities while falling in others, masking aggregate efficiency gains.
2. Market Flexibility Ignored: A key strength of trading schemes lies in cost-effective abatement, not uniform reductions across all sectors or units.
3. Past Performance under PAT: Under PAT Cycle I (2012–14), energy intensity rose in chlor-alkali and paper, but overall economy-wide energy intensity declined. This demonstrates that entity-level variations don’t preclude aggregate improvements.

Rationale for Economy-Wide Evaluation

1. Externality Management: Carbon markets exist to address market failures (GHG externalities) — their success hinges on total emissions reduced, not on who reduces them.
2. Equity in Cost Distribution: High-cost abatement units can purchase credits, while low-cost entities earn through overachievement. This promotes equitable burden-sharing and avoids economically disruptive mandates.

India’s CCTS and the Economy-Wide Perspective

1. Eight Industrial Sectors Covered: Cement, steel, aluminium, petrochemicals, refineries, chlor-alkali, textiles, and paper & pulp.
2. Targeted Metric: Emissions Intensity of Value Added (EIVA) — CO₂ per unit of economic output.
3. Projected Annual EIVA Reduction: 1.68% (2023–2027) for covered sectors (based on production and price projections). 2.53% needed (CEEW modelling) in manufacturing to align with India’s 2030 NDCs. Indicates a shortfall, calling for upward revision in target ambition.

Comparative Sectoral Insights

1. Power Sector: Projected to decarbonize faster due to easier low-cost options (renewables, efficiency improvements). Emissions intensity decline estimated at 3.44% annually (2025–2030).
2. Industry: Faces structural inertia and high capital lock-in, thus needing complementary policy instruments beyond trading (like tech transfer and green finance).

Global Comparisons

1. EU Emissions Trading System (ETS): Operates with economy-wide caps, allowing trading across sectors.
2. China’s ETS: Initially power-sector focused, now expanding to other industries, emphasizes aggregate emissions reduction, not uniformity.

Benefits of an Economy-Wide Assessment Approach

1. Optimizes Climate Outcomes: Achieves maximum emissions reduction at lowest economic cost.
2. Promotes Sustainable Growth: Allows industry to adapt without compromising competitiveness.
3. Drives Innovation: Incentivizes cost-effective, clean technologies across the economy.
4. Supports Net-Zero Goals: Aligns with India’s 2070 net-zero commitment and global climate responsibilities.

Way Forward

1. Increase CCTS Target Ambition: Align with decadal decarbonization rates required for NDC goals.
2. Robust Modelling: Conduct sector-wide economic and emissions modelling to fine-tune aggregate caps.
3. Complementary Policies: Invest in green hydrogen, CCUS, and hard-to-abate sector transitions.
4. Transparent Monitoring: Real-time emissions tracking and third-party verification to maintain market integrity.

Conclusion

India’s carbon trading framework must shift from micro-level scrutiny to macro-level ambition. Economy-wide assessment ensures climate effectiveness, fairness, and sustains industrial growth within ecological thresholds.