[Answered] Discuss the significance of carbon trading in the context of India’s commitment to reducing greenhouse gas emissions. Analyze the potential challenges and benefits of establishing the Indian Carbon Market (ICM).

Introduction: Describe carbon trading.

Body: Significance of carbon trading & benefits, challenges of ICM.

Conclusion: Way forward.

Carbon trading is the buying and selling of credits that permit a company or other entity to emit a certain amount of carbon dioxide or other greenhouse gases. It is authorized by the government to gradually reduce overall carbon emissions and mitigate their contribution to climate change. Indian Carbon Market (ICM) aims to decarbonize the Indian economy by pricing the Green House Gas (GHG) emissions through the trading of Carbon Credit Certificates.

What is its significance in reducing GHG emissions in India?

  • Incentivizes emission reduction: Businesses and industries are given financial incentives to lower their greenhouse gas emissions because of carbon trading. Companies are allotted a fixed number of emissions allowances, and those who can lower their emissions below their allotted level can sell their extra credits to others who exceed their limit.
  • Achieve international commitments: India is a signatory to international climate agreements like the Paris Agreement, along with many other nations. These agreements bind nations to particular emission reduction goals & give flexibility in how to achieve these goals.

What are the challenges of establishing ICM?

  • Price fluctuations: Carbon markets can experience price volatility, which can impact the profitability of emission reduction projects and the overall stability of the market. India would need mechanisms to mitigate such volatility.
  • Data and Monitoring: Establishing an effective carbon market requires robust systems for data collection, monitoring, and verification of emissions reductions. India may face challenges in setting up and maintaining these systems, especially in rural areas.

What are the benefits of ICM?

  • Transition to low carbon economy: ICM will enable the creation of a competitive market that can provide incentives to climate actors to adopt low-cost options by attracting technology and finance towards sustainable projects that generate carbon credits. It can be a vehicle for mobilizing a significant portion of investments required by the Indian economy to transition toward low-carbon pathways.
  • Cost-effective mitigation: The ICM will mobilize new mitigation opportunities through demand for emission credits by private and public entities. A well-designed, competitive carbon market mechanism would enable the reduction of GHG emissions at the least cost, both at the level of entity, as well as the overall sector, and drive faster adoption of clean technologies, in a growing economy like India.


As the nation moves towards achieving its ambitious target of turning net zero by 2070, initiatives like carbon trading & carbon market can help in carbon management solutions and clean energy transition towards maintaining the delicate balance between economic needs and environmental concerns.

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