Article 6 of the Paris Agreement and India

India’s Article 6 Gamble: Can Carbon Markets Deliver on Climate and Growth?

It took nearly two decades of convoluted negotiations, but at COP29 in 2024, Article 6 of the Paris Agreement was finally operationalized. The pivotal moment lies in Article 6.2 and Article 6.4—mechanisms designed to enable international carbon trading and credit generation—essential tools for countries to meet their Nationally Determined Contributions (NDCs). India, a linchpin of the developing world’s climate negotiations, wasted no time. By formally signing the Joint Crediting Mechanism (JCM) with Japan, it became one of the first major economies to take a definitive step under Article 6.2. This is not just a carbon trading agreement; it’s a bet on cooperation for low-carbon technology transfer. But can India strike the balance between incentivizing carbon finance and safeguarding development priorities?

What Does Article 6 Offer: Cooperation or Complexity?

The architecture of Article 6 has been touted as a game-changer. Article 6.2 facilitates bilateral or plurilateral trading of Internationally Transferred Mitigation Outcomes (ITMOs), essentially emission reductions traded as commodities. Meanwhile, Article 6.4 creates a centralized body now known as the Paris Agreement Crediting Mechanism (PACM). This replaces the much-maligned Clean Development Mechanism (CDM), promising stricter accounting rules to avoid double counting and tougher oversight for environmental integrity.

India’s collaboration with Japan under the JCM aligns directly with Article 6.2, allowing emissions reductions achieved in India—for instance, through renewable energy or efficiency upgrades—to count toward Japan’s NDCs. The government has targeted 13 eligible activities under Article 6, including renewable energy with storage, green hydrogen, fuel-cell-based mobility, and carbon capture and storage (CCS).

But the numbers tell their own story. India’s current voluntary carbon projects take an average of 1,600 days to register—four times slower than some of its regional competitors. For a country aiming to harness the full potential of international carbon finance, that timeline is a bottleneck. Cutting through this bureaucratic inertia will require an overhaul of governance, especially through India’s Designated National Authority (DNA).

The Case for Carbon Markets: Tech Transfer, Finance, and Scale

Proponents of India’s Article 6 engagement highlight three core benefits. First, there’s the promise of low-carbon industrial technology infusion. Sectors such as steel and cement—responsible for 20–25% of India’s greenhouse gas emissions—are crucial targets. By coupling Japanese finance with India’s infrastructure needs, the JCM could unlock technologies like hydrogen-based steelmaking and high-end energy efficiency applications.

Second, the financial scale matters. According to a 2023 World Bank report, international carbon markets could grow to $250 billion annually by 2030. India, with its low-cost mitigation options and untapped carbon removal projects like biochar or afforestation, could emerge as a key supplier of high-quality credits. Finally, there’s geopolitical alignment. Collaborating with Japan and other developed nations offers an opportunity to build trust while amplifying South–South cooperation under frameworks like the International Solar Alliance (ISA). The government’s strategy aligns well with its domestic decarbonization goals without sacrificing its sovereignty over project choices.

The Problem of Institutional Realities

Yet, the optimism must contend with institutional limitations. For instance, the Designated National Authority (DNA), which oversees carbon mechanisms under UNFCCC, has been largely reactive. Its approval timelines are infamously sluggish, and its capacity to ensure “corresponding adjustments”—the core tool for preventing double counting of ITMOs—remains uncertain. Without significant investment in capacity-building, India could miss the window to operationalize key projects.

Second is the rising concern over environmental integrity. Critics argue that allowing developed nations to offset emissions through mechanisms like ITMOs shifts the burden of decarbonization disproportionately onto Global South countries. While India retains veto power over which projects qualify under Article 6.2, the fear of “hot air credits” remains real. Brazil, under its prior approach to voluntary carbon markets, saw accusations of double counting and dubious baselines erode global investor confidence. Could India avoid a similar trap?

Finally, the issue of domestic governance. India’s voluntary carbon markets remain fragmented. Unlike China, which launched a national emissions trading system for its power sector in 2021, India lacks a unified domestic market. Aspirations to become a global hub for carbon credit supply will falter unless domestic infrastructure—such as a single-window clearance system and enabling state-level legislations—is prioritized.

Learning from Japan’s Pragmatism

The irony is striking. Japan, while partnering with India under Article 6.2, has simultaneously reduced its reliance on carbon offsets. Its domestic carbon pricing strategy gradually shifted focus toward in-country emissions cuts, backed by subsidies for hydrogen and ammonia technology. Unlike Europe, Japan avoided punitive carbon taxes, instead incentivizing industrial innovation. The result? A steady decline in emissions even post-Fukushima’s nuclear shutdown underlines its policy effectiveness.

By contrast, India’s current approach risks placing too much emphasis on international carbon markets while ignoring the potential of complementary tools—domestic carbon markets and targeted fiscal incentives. The question is whether India can emulate Japan’s nuanced understanding of balancing domestic policy with international cooperation.

Is India Betting Wisely?

Where does this leave India? Pragmatism should temper ambition. The potential of Article 6 under the Paris Agreement is immense, offering both political and economic cover to scale climate action. At the same time, the institutional and market frameworks required to make this work are not yet robust. India appears poised to leverage global finance for its decarbonization roadmap, but cracks in its governance architecture remain.

The real challenge lies in avoiding the fate of CDM 2.0—a market plagued by inefficiency and credibility issues. Unless India acts decisively to streamline project approvals, enforce robust accounting, and build market confidence, Article 6 could complicate rather than complement its climate efforts. Policymakers must address not just the technology and finance gaps, but also the trust vacuum that has historically undermined carbon markets globally.

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