Context

• The 29th Conference of the Parties (COP29) in Baku, Azerbaijan, often termed the ‘Climate Finance COP,’ marked a significant milestone in the operationalisation of Article 6 of the Paris Agreement (PA).
• India, as a major developing economy with ambitious climate targets, stands to benefit from these mechanisms.
• However, challenges such as financial constraints, governance issues, and equitable benefit-sharing remain critical.
• Amid these developments, it is crucial to explore the implications of Article 6 for India, its alignment with India’s domestic climate policies, opportunities for international collaboration, and potential challenges that need to be addressed.

An Overview of Article 6 of the Paris Agreement and Its Alignment with India’s Climate Policies

• Article 6 of the Paris Agreement
  • Article 6 has the potential to meet climate ambitions through cooperative approaches.
  • By emphasising market-based mechanisms, COP29 has provided countries with new avenues to achieve their climate goals, particularly through cooperative approaches such as Article 6.2, a key component of article 6 of the Paris Agreement.
  • This framework facilitates the transfer of Internationally Transferred Mitigation Outcomes (ITMOs) between host and partner countries, thereby fostering emissions reductions, technology exchange, capacity building, and financial resource mobilisation.
• India’s Climate Policies and Article 6.2
  • India has set ambitious Nationally Determined Contributions (NDCs), including a pledge to reduce emissions intensity by 45% by 2030.
  • However, financial and technical limitations have been a significant roadblock, with India repeatedly calling for developed nations to mobilise at least $1 trillion annually in climate finance for developing countries.
  • The introduction of India’s Carbon Credit Trading Scheme (CCTS) in 2023 demonstrates a commitment to integrating market mechanisms into national policy.
  • While not directly linked to Article 6.2, the CCTS provides a structured approach to carbon credit verification and tracking, enhancing India’s readiness to engage in international carbon markets.
  • Furthermore, India’s experience with mechanisms such as the Clean Development Mechanism (CDM), Voluntary Carbon Market (VCM), Energy Saving Certificates (ESCerts), and Renewable Energy Certificates (REC) strengthens its foundation for effective participation in Article 6.2 transactions.

Opportunities for India Under Article 6.2

• Unlocking Climate Finance and Foreign Investment
  • One of the most significant opportunities for India under Article 6.2 is its potential to generate large-scale climate finance by selling ITMOs to countries that need additional emission reductions to meet their NDCs.
  • Given the high cost of mitigation measures in developed countries, many of them may find it more cost-effective to purchase ITMOs from India.
  • This can help India attract financial resources to fund its transition to a low-carbon economy.
  • ITMO transactions can further enhance investor confidence and lead to increased funding for renewable energy, energy efficiency, and other sustainable projects.
  • India’s CCTS, launched in 2023, can be integrated with Article 6.2 mechanisms to create a transparent and efficient carbon market, attracting further investments.
• Accelerating Renewable Energy and Clean Technology Development
  • India has already made significant strides in renewable energy deployment, with ambitious targets such as achieving 500 GW of non-fossil fuel energy capacity by 2030.
  • Under Article 6.2, India can enhance its clean energy transition by collaborating with developed nations and selling ITMOs from renewable energy projects.
  • Partner countries investing in India’s ITMO projects can facilitate technology transfer in areas like solar photovoltaics, wind energy, and smart grid systems.
  • These advancements can drive efficiency, reduce costs, and improve energy security.
  • India has identified green hydrogen and sustainable aviation fuel as priority areas for Article 6.2 collaboration.
  • By securing investments from countries like Japan, South Korea, and the EU, India can establish itself as a global leader in these emerging technologies.
• Strengthening South-South Cooperation and Leadership in the Global Carbon Market
  • India has the potential to play a pivotal role in strengthening South-South cooperation under Article 6.2 by engaging in ITMO transactions with other developing countries, particularly in Africa.
  • Many African nations face severe climate vulnerabilities, particularly in agriculture, water resources, and energy security.
  • India’s expertise in renewable energy deployment, digital tools, and sustainable agriculture can help these nations transition to a low-carbon economy.
  • India’s past collaborations with African countries in trade, investment, and infrastructure development provide a strong foundation for climate partnerships.
  • Under the principles of India-Africa engagement outlined by Prime Minister Narendra Modi, India can support Africa’s clean energy transition while securing carbon credits for its own sustainability goals.
• Generating Economic and Social Co-Benefits
  • ITMO transactions under Article 6.2 not only facilitate emissions reductions but also provide significant economic and social benefits.
  • Expanding renewable energy projects and clean technology industries will create employment opportunities, particularly in rural areas where green jobs can support economic development.
  • Reducing reliance on fossil fuels can lead to improved air quality, reducing respiratory illnesses and public health expenditures.
  • Investments in climate-resilient infrastructure, such as sustainable urban transport and energy-efficient buildings, can enhance India’s long-term sustainability.

Challenges in ITMO Transactions and Climate Finance Mechanisms

• A key concern is that developed countries might rely on purchasing low-cost ITMOs from India instead of undertaking substantial domestic decarbonisation efforts.
• This could shift the burden of mitigation disproportionately onto India, potentially undermining its own sustainability goals.
• Another challenge is the governance and transparency of ITMO mechanisms.
• If not properly regulated, ITMO transactions could lead to inefficiencies, inequities, and potential carbon leakage, where emissions reductions are merely shifted between regions rather than genuinely mitigated.
• The risk of over-reliance on carbon markets at the expense of direct emissions reductions must also be carefully managed.

The Way Forward to Address These Challenges

• To address these risks, India must incorporate strong safeguards in its ITMO agreements, ensuring equitable benefit-sharing, robust governance, and alignment with both national and global climate ambitions.
• Learning from existing mechanisms such as Japan’s Joint Crediting Mechanism (JCM), where credit allocation is determined based on mutual contributions, India can establish transparent frameworks to optimise ITMO utilisation while safeguarding its developmental interests.

Conclusion

• COP29 has reinforced the role of market-based mechanisms in advancing global climate ambitions, with Article 6.2 emerging as a key enabler of cooperative action.
• For India, this presents a significant opportunity to unlock climate finance, enhance technological capabilities, and strengthen international partnerships.
• However, the country must navigate the complexities of ITMO transactions carefully to avoid financial dependencies, governance pitfalls, and potential trade-offs with its own sustainability objectives.