India's carbon market: from design to implementation

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Vipul Garg:

Hello and welcome to the Platts Commodities Focus podcast by S&P Global Energy. I'm Vipul Garg, senior pricing reporter covering environmental markets as Platts. Today we are discussing a market that could fundamentally reshape how Indian industry approaches emissions management, India's emerging carbon market.

India is laying the foundations for its Carbon Credit Trading mechanism, or generally called CCTS, which will introduce a compliance carbon market for emission-intensive sectors. At the same time, Indian companies are navigating international pressures such as European Union's Carbon Border Adjustment Mechanism, or CBAM, while also exploring opportunities through international carbon markets and Article 6 mechanisms. So what does this transition mean for Indian businesses? Are companies already preparing for a carbon-constrained future? And what market signals are emerging as compliance and voluntary carbon markets continue to evolve?

Joining me today, Mr. Prabhoda Acharya, chief sustainability officer at JSW Group. JSW Group is one of the largest industrial conglomerates in India, with businesses spanning steel, cement, energy, and infrastructure. Two of its major entities, JSW Steel and JSW Cement, are expected to participate in India's emerging carbon market framework. Also joining us is Anirudh Iyer, senior price reporter at Platts, who tracks carbon market pricing and developments across both compliance and voluntary carbon markets very closely. Thank you both for joining us today.

So Mr. Prabhoda, let me start with you. JSW Group is likely to be among the entities covered under India's emerging compliance carbon market. How are you preparing for a carbon-constrained environment and do you see the Indian carbon market materially changing investment and operational decisions or largely reinforcing your existing decarbonization roadmap?

Prabhoda Acharya:

Vipul, thank you very much. It's my privilege to be part of this podcast. To answer you, as you stated, JSW Group, there are two companies who are mandated by compliance requirement with respect to carbon emissions. One is JSW Steel, which is the largest steel producer in India, and another is JSW Cement. So here, as per the Indian compliance carbon market, which is known in CCTS, the entities are covered. That means the targets are set for individual operations rather than at the company level.

To answer your question, we fundamentally believe that this Indian compliance carbon market is going to reinforce, sharpen, and accelerate our already having a decarbonized roadmap rather than fundamentally changing it. You might be aware that JSW has already embedded decarbonization into its long-term business strategy. This is happening through investment in renewable energy, through energy efficiency, through circularity, through digital optimizations, adopting low-carbon technologies such as carbon capture utilization and hydrogen exploration.

So a carbon-constrained future is no longer hypothetical. Regulatory developments, investor expectations, customers' requirements, and global trade measure, like you stated, CBAM, are moving in the same direction. So we therefore view carbon as an emerging business variable that must increasingly be managed alongside energy, raw material, and capital. So it's going to complement the decarbonization strategy for our group companies.

Vipul Garg:

Thank you, sir. Coming to Anirudh now. Anirudh, building on the point, many companies are trying to understand what participation in a compliance market could mean in practice. Based on what you're tracking, what are the emerging price signals or expectations for Indian carbon credits, both in a future compliance market context and within the voluntary carbon market today?

Anirudh Iyer:

Thanks, Vipul. Thank you so much for this opportunity to be a part of this podcast. And, yeah, like you mentioned, the compliance component and the offset component, not just in India, but if you look globally as well, there are several countries that are coming up with domestic compliance markets. The international voluntary carbon market is transitioning to Article 6.4, so both these branches are quite integral to the overall functioning of the carbon market. But if you look at each of these components separately on the compliance side, when you take India into consideration, the compliance side is still in a very price-discovery phase. So trading is not yet established and nobody can confidently point to a fair value for the Indian carbon credit price as on today.

What we are seeing is that there is some expectations among the participants driven by contingency of these emission intensity targets, the volume of surplus credits generated, and the overall market liquidity situation. So like most of the listeners also know that India's system is intensity-based rather than a cap and trade model, so the risk of excess supply in the early years is something that participants are watching closely. Having said that, there is still a strong view that compliance demand will eventually create a more reliable carbon price signal than the voluntary market has offered in recent years and the launch of the compliance trading itself is expected to be a major confidence boost for carbon markets in the country.

And on the other hand, if you take the voluntary market, traditional avoidance credits, if you take, for example, the renewable energy credits, they are a bit under pressure due to oversupply and weak buying demand scenarios prevalent in the market as of now. Renewable energy credit prices have come down quite sharply and the buyers are also becoming more selective with regards to ratings and integrity and quality, so the demand is dwindling for that segment. However, a bright side for the voluntary carbon market is the high-integrity removal segment, the biochars and the enhanced rock weathering segments, the afforestation segments and other carbon removal pathways, though quite capital-intensive, are attracting strong buyer interest, like I mentioned, because, mainly, corporates looking at durable and scientifically robust carbon credits.

Even in this scenario, India is becoming a significant supplier of these credits. Some of the deals that have happened recently for the biochar developers with large institutional buyers from the West is testament to the fact that India is stepping up to be a major supply in the removal space. And with supply also increasing, perhaps these capital-intensive credits could also provide a slight moderate price correction going ahead. So just to sum it up, voluntary market is increasingly becoming quality-centric, while compliance market is pivoting more towards price discovery as and when compliancies unfold.

Vipul Garg:

Thanks, Anirudh. Coming back to you, Mr. Acharya, one of the key external drivers for industry is CBAM and broader global trade developments. While JSW Group may not be directly exposed across all of its businesses, many of your customers and export-oriented value chains are increasingly affected by CBAM requirements. Is CBAM already influencing discussions around carbon accounting, power procurement, and competitiveness? And do you see India's carbon market helping domestic industry adapt to a carbon-priced global economy?

Prabhoda Acharya:

Vipul, thanks for the questions. But before answering your questions, I just wanted to touch upon a point covered by Anirudh in the earlier discussion. So just to reinforce that Indian carbon market, which is CCTS, is also based on cap and trade mechanism, but he rightly pointed out it is an intensity-based target. So if you want to really have the carbon market to be effective, this intensity target needs to be stringent and also needs to be uniformly applied across these sectors. Unlike when you have an absolute target, it gives to different installations and operations, a different absolute emission, when you are setting an intensity target, in my view, it should be given same intensity target to all the operators and it should be in line with our ultimate objective to achieve net-zero by 2070. So the stringent target will create a demand pool, and therefore the carbon price discovery will be faster. That's the point I just wanted to touch on from the earlier discussion.

Now coming to answer your question, Vipul, on the CBAM, in a sense, JSW Steel is directly, or I would say it's going to get impacted because of the CBAM implementation. So that is a direct correlation because some of our steels are getting directly exported to European market, and also, as you stated, some pump in the value chain. But in general, CBAM has already changed the global conversation from carbon reporting to carbon competitiveness. So even when Indian companies like JSW is not directly going to pay the carbon price, but naturally the price discovery and the competitiveness is going to get impacted because of the carbon prices. So therefore, if we need to be competitive across the global market, we need to ensure our cost of delivery decreases by reducing the carbon, because earlier carbon was never in the equation to find the final price of delivery. So this is now a part of it. So it is increasingly getting realized and customers are increasingly seeking product-level carbon informations, emission transparency, and credible reduction pathways to determine how the business will take this in the future.

So the conversation has now moved beyond compliance. It is on the market, access, and competitiveness at the moment. So is it influencing directly to the investment decisions? It is yet to be discovered, but there are some of the discussions that have started happening. For example, JSW Steel has announced a green steel facility to start with 4 million tons and taking it to 10 million tons. So these decisions are getting influenced by the fact that the carbon is going to determine the cost of the product that is going to be delivered to the consumers. And that is where I think mechanisms like CBAM or even CCTS is going to help in right capital allocations for the decarbonization in the businesses.

Vipul Garg:

Thank you, sir. So Anirudh, Mr. Prabhoda talked about the importance of preparing the industry for a carbon-priced future. From a market perspective, what are the key challenges holding back the Indian compliance market today, whether it's regulatory clarity, monitoring and verification systems, liquidity, or participant readiness, and how are current voluntary market trends shaping expectations for India's compliance market?

Anirudh Iyer:

Thanks, Vipul. So yeah, like Mr. Acharya also mentioned, it is more about retaining the competitiveness and it's more about customers also getting more aware of all of the mechanisms that are coming up, embedding carbon prices in the product, and still making it competitiveness is of course a challenge. But if you take India's perspective, the market is moving from policy to implementation, and that is a transition that is happening at this point in time. And of course, any market that moves from paper to operationalization, it has some challenges just to start off with some regulatory challenges.

So in India's context, there are still certain doubts on how decarbonization measures will be treated, how these compliance obligations evolve after the initial few years, how are banking provisions ultimately going to look like, and how the market will eventually develop after the first few compliance cycles, with price discovery also being one of them, with future demand outlook also being one of them, and several other factors influencing what all regulatory changes might come up from the government side as the market unfolds.

But yeah, like Acharya also mentioned, businesses can manage carbon costs, but it's just that they need long-term visibility to consider all of this in their investment decisions. And second is the MRV. Though India has made progress in building the infrastructure for monitoring, reporting, and verification, confidence in any compliance market will depend on the credibility and consistency of emission data. So participants will want to see how robust MRV functioning can smoothly be embedded into the system before actual liquidity scales up.

And touching upon liquidity very briefly, see any market, the demand supply fundamentals is what keeps the market going, and the efficiency of buyer and seller coming into the market to transact is what keeps the price discovery happening, keeps the prices moving. So even though in the initial few years market will need sufficient participation, a transparent pricing and a healthy balance between supply and demand is something that will ensure sustainability of the market, per se. Excess surplus credit generation is something that the market is also looking for as there is potential that excess supply can result in prices dipping a little, but balancing market mechanisms shows an effective way of ensuring that the Indian market, or any carbon market, for that matter, sustains going ahead.

Vipul Garg:

Thank you, Anirudh. So Mr. Acharya, beyond domestic compliance, companies are also evaluating international opportunities. How do you view mechanisms such as joint crediting mechanism and broader Article 6 carbon markets? What would make them a meaningful component of corporate decarbonization and carbon management strategies in India?

Prabhoda Acharya:

Thanks, Vipul. I believe Article 6 and Indo-Japan joint crediting mechanism or similar JCMs can play an important enabling role, particularly in accelerating deployment of emerging low-carbon technologies, specifically if you see in the hardcore sectors like steel, cement, or chemicals where we are working, the scale of investment required for deep decarbonization is significant, and the technologies such as green hydrogen, carbon capture, utilization, storage, or industrial electrification, advanced process innovations will require substantial capital. So international cooperation mechanism like JCMS can help breeze those financing and technology gaps, and it'll also enable collaboration between technology providers and project developers that facilitates technology transfer, accelerates deployment of innovative solutions. And that is where it becomes attractive.

And as far as Article 6 is concerned, it has the potential to unlock those global mitigation opportunity and direct capital flow towards cost-effective emission reduction. See, carbon market's main objective is to find the cost-effective decarbonization solutions. So that means wherever the cost of decarbonization is lower, capital should flow there. That is the fundamental principle in which carbon market works. And that is where I think Article 6 has a role. But well-designed markets can help to accelerate those global decarbonizations. But importantly, as Anirudh also stated, what we need this to be successful is very high environmental integrity. And this has always been questioned when it comes to earlier CDM mechanism, or now in Article 6, this is going to play a very important role. So avoiding double counting, then having very clear national rules and approval process, which having a long-term regulatory predictability is very important.

We must also prioritize transformational projects rather than only focusing on low-cost reductions and then fitting into this requirement. That's not going to change or move the needle much. It is also important in these mechanisms to reduce the complexity and lower the transaction cost. Often, if you find in the earlier experiences, the transaction cost is becoming higher. And that coupled with approval timelines becomes a bottleneck. So we need to be very careful about it. And that is where, if we take care of these things, I believe corporate, like JSW or any corporate, they can have a real strategy to have the carbon credit as a complimentary role and also getting additional funding to support those deep decarbonizing drives. And primary focus has to remain on reducing emissions within our operation and value chain rather than bringing in carbon credits to meet own obligations. That is what I like to really stress on.

And as far as if you look at our decarbonization strategy, we do not rely on using carbon credit as a major to meet our obligations. Rather, we are focusing on financially-viable solutions to decarbonize our own operation first and work on our value chain. So high-integrity carbon markets can provide some additional flexibility, and that can help accelerate investment into breakthrough technology.

So that's my view on international markets and cooperations from government to government like JCM, as you see. So for industry, Article 6 should be viewed as a decarbonization accelerator, not as a substitute for emission reduction. So the real value lies in mobilizing technology, capital, and global cooperation. So that's very important.

Vipul Garg:

Thank you for your thoughts, Mr. Acharya. I would also like to close by getting a brief forward-looking view from you. So over the next three to five years, what will determine whether India's carbon market becomes a meaningful decarbonization tool rather than just another compliance requirement?

Prabhoda Acharya:

Thank you, Vipul. I think the future is not simply about managing carbon compliance. Let us be very clear about it. It is about building a long-term competitiveness in low-carbon economy. So at the end, the product and services has to be delivered in a competitive manner. That should be the main objective. So whether it is through India's carbon market, whether it is through CBAM-related SIPs or Article 6 mechanism, the common theme is very clear, that companies that invest early in decarbonization, transparency, and innovation will be better positioned to succeed in the decades ahead. So the success of any carbon market depends on how we really use that in driving the needle in decarbonization and making the product and services competitively delivered to the customers, meeting all the obligations.

Vipul Garg:

Thank you so much, sir. Thanks to Mr. Prabhoda and Anirudh for sharing their insights. As you have heard, India's carbon market is steadily moving toward implementation from policy design, and implications extend far beyond compliance. For industrial companies, the discussion increasingly centers on competitiveness, investment decisions, export readiness, and long-term decarbonization strategies. Whether through domestic compliance market, voluntary carbon mechanisms, or emerging international frameworks such as Article 6, carbon is becoming a more important consideration in how businesses operate and compete. We'll be closely tracking how these markets evolve in the months and years ahead. Thanks for listening and we'll see you next time. This episode was produced by Chandreyee Mukherjee in Gurugram.