India's Carbon Credit Scheme Could Fund Clean Energy Transition, Says Report

India's nascent Carbon Credit Trading Scheme (CCTS) presents a substantial opportunity to generate domestic revenue, which could be directed toward the nation's clean energy transition, according to a new report by the Asia Society Policy Institute (ASPI).

The report, titled ‘Carbon Credit Trading Scheme & Energy Transition Finance: Preparing India for Optimal Use of Compliance CCTS Revenue,’ emphasizes the central financing challenge India faces: supporting deep industrial decarbonization while simultaneously safeguarding workers, communities, and state economies still heavily reliant on fossil fuels.

"India’s transition toward a low-carbon economy requires a financing architecture capable of supporting deep industrial decarbonization, strengthening economic resilience in fossil fuel–dependent regions, and ensuring a just and equitable clean energy transition," the report's authors, Nishtha Singh and Alistair Ritchie, stated. They added that the CCTS "offers a significant opportunity to mobilize domestic revenue at scale while advancing India’s climate commitments and safeguarding industrial competitiveness."

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India’s transition toward a low-carbon economy requires a financing architecture capable of supporting deep industrial decarbonization, strengthening economic resilience in fossil fuel–dependent regions, and ensuring a just and equitable clean energy transition.

Drawing on global examples like the European Union Emissions Trading System (EU ETS), the report details how emissions trading systems can yield considerable public revenue through the auctioning of allowances. These revenues can then be reinvested into clean energy initiatives, industrial decarbonization, energy efficiency, and support for social and economic transitions. The EU ETS, launched in 2005, is a prime example, covering approximately 40% of the EU's total greenhouse gas emissions and generating substantial revenue.

For India, the ASPI report projects that auctioning allowances solely for the power sector could yield over $500 billion by 2050. This financial influx comes at a critical juncture, as industries such as steel, cement, aluminum, and paper require significant capital for decarbonization. Simultaneously, coal-dependent states face potential risks to public revenues, employment, and community welfare. The report proposes a CCTS-enabled Energy Transition Finance Mechanism, featuring two complementary funds, to ensure that CCTS revenues effectively support both industrial transformation and a just transition for regions dependent on fossil fuels.

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The Carbon Credit Trading Scheme offers a significant opportunity to mobilize domestic revenue at scale while advancing India’s climate commitments and safeguarding industrial competitiveness.