ABSTRACT
This chapter explores the need for of carbon pricing in India, examining its suitability, design considerations, and potential impact on economic growth, job creation, and industrial competitiveness. The analysis juxtaposes carbon tax and emissions trading systems (ETS) as viable mechanisms, considering their implications within the Indian context. Highlighting India’s recent initiation of a domestic carbon market through the Carbon Credit Trading Scheme (CCTS) and existing market-based mechanisms such as the perform achieve and trade (PAT) scheme and renewable energy certificates (REC) mechanism, the chapter will provide insights into India’s experience with market mechanisms for climate and clean energy.
Drawing from global experiences and studies, the chapter explores the design considerations for both carbon taxes and carbon markets. For carbon taxes, the chapter will review the merit of a phased implementation of carbon taxes, revenue recycling strategies, and sectoral approaches to ensure efficacy and fairness. The chapter further discusses the importance of maintaining liquidity, stability, and quality of emission credits. Moreover, it addresses the potential impacts of carbon pricing on prices, jobs, and industrial competitiveness, underscoring the need for cautious implementation and policy adjustments. Finally, the chapter analyses whether a balanced approach can be taken which integrates carbon pricing within a broader policy framework to facilitate India’s transition towards a sustainable, resilient, and inclusive economy
