By Anil

Copyright thehindubusinessline

When India and Japan signed their first Memorandum of Cooperation (MoC) under Article 6.2 of the Paris Agreement earlier this month, it was more than just another bilateral accord. It was the first time India formally entered international carbon credit trading—a step that shifts carbon markets in India from a distant policy vision to an operational reality. For Japan, this marks its thirty-first Joint Crediting Mechanism (JCM) partnership. For India, it is the beginning of a new economic and climate diplomacy frontier.

At its core, the India–Japan JCM opens a pathway for project developers, industries, and investors to generate and trade emission reduction credits across borders. With the Ministry of Environment, Forest and Climate Change (MoEFCC) finalising a detailed list of eligible activities—from renewable energy with storage, solar thermal, offshore wind, and e-mobility to carbon capture, green hydrogen, and biodegradable alternatives—the market now has a clear playbook. For the first time, Indian businesses know where opportunities lie and how they can participate in global carbon finance flows.

The short and the long term

The implications are both immediate and long-term. Immediately, the agreement lowers the cost of green technology deployment in India, thanks to Japanese financial support, technology transfer, and capacity building. Advanced decarbonisation equipment that might otherwise be unaffordable for Indian companies becomes viable when supplemented by carbon credit revenues. In the longer term, this partnership aligns with India’s Net Zero 2070 pledge and NDC targets under the Paris Agreement, while simultaneously strengthening Japan’s GX-ETS carbon trading system, set to fully launch in 2026.

Yet, opportunities must be weighed against risks. The allocation of credits is one such challenge. India has its own domestic compliance carbon market in the making, and policymakers will have to carefully balance the export of credits under Article 6.2 with meeting national reduction commitments. Prolonged negotiations over revenue-sharing formulas and credit distribution could slow momentum. Likewise, the operational complexity of Article 6 reporting—Initial Reports, Biennial Transparency Reports (BTRs), and registry alignment with UNFCCC—requires a robust monitoring, verification, and transparency framework. Here, Japan’s extensive experience with its 30 other JCM partners could help India avoid early pitfalls, but it will also require deliberate institutional strengthening at home.

The establishment of India’s National Designated Authority for Article 6 is a significant safeguard. With representation from 21 ministries and a mandate to align projects with national sustainable development goals, the Authority ensures environmental integrity is not compromised in the pursuit of carbon finance. This cross-sectoral structure is also a signal to investors that India intends to create a credible, transparent, and scalable carbon market.

Broader agenda

Strategically, the India–Japan partnership is more than a climate deal. It builds upon the broader Indo-Japan economic corridor —covering infrastructure, digital transformation, skill development,

and green technologies. Prime Minister Modi, during his recent visit to Tokyo, underlined this synergy when he urged recreating the automobile success story in batteries, robotics, semiconductors, and green energy. Carbon markets can provide the financial underpinning to accelerate precisely these sectors.

For Indian businesses, the timing is fortuitous. Global demand for high-quality carbon credits is rising, particularly as advanced economies tighten their net zero compliance regimes. With its abundant renewable potential, strong IT backbone, and growing expertise in MRV (monitoring, reporting, and verification), India could emerge as one of the world’s largest suppliers of Article 6-compliant credits. But to do so, project developers and industries must move quickly, leveraging the clarity of eligible activities and the policy momentum now in place.

For Japan, this partnership secures a reliable pipeline of credits to balance its own commitments while deepening its green investment footprint in India. For India, it provides finance, technology, and global market access, while signalling that climate diplomacy can create win-win outcomes for both partners.

The bigger picture is clear. If implemented well, the India–Japan JCM could become a model for other bilateral partnerships under Article 6, positioning India as not just a participant, but a rule-shaper in global carbon markets. If bogged down by delays in regulation, weak verification systems, or poor credit allocation mechanisms, however, it risks becoming a cautionary tale. The difference lies in execution.

Carbon markets are no longer the future—they are here, and India has taken its first decisive step into them. By marrying Japanese technology and finance with India’s scale and renewable potential, this cooperation can accelerate the green transition for both nations. The opportunity is immense, but seizing it requires speed, clarity, and uncompromising environmental integrity.

In the end, history will judge this MoC not by the number of credits traded, but by whether it catalysed a genuine transformation of economies, ecosystems, and livelihoods. Done right, the India–Japan carbon market pact could become a defining chapter in how Asia leads the world in climate action, with a special strategic partnership that is both wide-ranging and action-oriented.

Trigunayat, a retired IFS officer, has served as the trade commissioner in New York; Singh is CEO & Director, Earthood

Published on September 19, 2025