IEEFA Report: India's Carbon Market Framework and CCTS Key for Competitiveness Against EU CBAM

A new IEEFA report, produced with the Environmental Defense Fund, analyzes the road ahead for India's Carbon Credit Trading Scheme (CCTS) as it enters its operational phase. The report notes that India's steel and aluminium exports to the EU fell 24.4% in FY2025, before any CBAM financial obligations took effect, suggesting European buyers are already shifting toward lower-emission producers. This underscores the urgency of building a robust domestic carbon market that can support industrial competitiveness and ensure carbon value is retained within India. The report makes recommendations across four areas: financial market participation, design choices for responding to border carbon costs like CBAM, sectoral expansion including the power sector, and managing offsets under Article 6 of the Paris Agreement. It draws lessons from Korea's ETS and India's PAT scheme, emphasizing that market depth and price signals depend on genuine compliance pressure and credible enforcement. The authors argue that financial intermediaries should only be introduced after scarcity and enforcement are established, and that power sector integration will require careful coordination with electricity market regulation. The report also advises sequencing offsets after the compliance market has found its footing, and authorizing high-integrity mitigation outcomes under Article 6 to attract international finance for harder-to-abate emissions reductions. India is at a critical juncture where early design choices will define the market's trajectory for years to come.