A case for joining the global carbon coalition

On July 31, nearly 500 Indian companies across seven industrial sectors filed their first-ever compliance reports under the national Carbon Credit Trading Scheme (CCTS). The country’s scheme — on paper since 2023 — is now live with binding targets, penalties and real entities. The first credits are due to be issued in October, with trading on power exchanges expected to follow between November and January. In May, the European Union, China, and Brazil launched the Open Coalition on Compliance Carbon Markets (OCCCM) in Florence, aimed at aligning the way the world’s compliance carbon markets communicate with each other. Germany and New Zealand joined as the first new members; Canada, France, Norway, Singapore, Türkiye and the United Kingdom have since followed. On September 14, at its meeting in Wuhan, the coalition adopted its first work plan.

India has stayed outside so far. With its own market now live, the more interesting question is no longer whether India can afford to build a carbon price — it already has. It is whether India can afford to sit outside the room where its rules get written. Or is it best avoided due to unforeseen risks? The OCCCM is a collaborative initiative for exchange on carbon pricing mechanisms; monitoring, reporting and verification (MRV) systems, carbon accounting methodologies, and rules related to the potential use of high-integrity offsets.

In India, the government has adopted a compliance carbon market framework in the form of a Carbon Credit Trading Scheme (CCTS), which is currently in its first phase. The CCTS (compliance) is set up to deliver on India’s Nationally Determined Contribution (NDC) targets and the 2070 net-zero goal.

The issue of a carbon price

There are two key reasons why India must seriously consider joining the OCCCM. The first is the proliferation of carbon pricing systems worldwide. The idea of having a carbon price as a key instrument, supported by complementary policy instruments, is back at the high table. It minimises the economy-wide cost of mitigation (critical for the global South) and can promote innovation while minimising the impact on the vulnerable. It can also deliver significant fiscal revenues at a time when government resources are increasingly stretched, including by the impacts of climate change — from heatwaves to devastating floods. As of now, over 50 countries have instituted carbon pricing measures. As the world advances towards a net-zero future, the likelihood that more and more countries adopt a carbon price is high.

We could be looking at a future where a bulk of emissions would be priced. At some point, more and more of these domestic carbon pricing systems will be linked — even if partially — to better coordinate. While the beginning of OCCCM focuses on knowledge exchange, one potential long-term strategic outcome is improved interoperability among domestic carbon pricing systems. It could be valuable to link India’s CCTS (compliance) to other carbon trading systems, given the potential to earn revenue from jurisdictions with more stringent mitigation targets.

On ‘climate clubs’

The second is to be better prepared in case a coalition along the lines of the EU’s Carbon Border Adjustment Mechanism (CBAM) develops. The idea of ‘climate clubs’ is re-emerging as geopolitics fractures United Nations Framework Convention on Climate Change (UNFCCC) discussions and attention turns to implementation. A report on a climate coalition centred around the CBAM issue was released in the context of an independent council convened by the COP30 President, Ambassador André Aranha Corrêa do Lago (The writers of this article are the co-authors of the report). The report describes alternative scenarios for CBAM coalitions in which there could be uniform or differentiated carbon prices across member-countries, incentives for member-countries, and penalties for non-member countries. With the European Union CBAM now operational, and many other countries contemplating their own versions of CBAM, being better prepared on this front is absolutely critical for India. While the OCCCM does not mention CBAM explicitly — most probably because of the sharp reactions the term evokes, especially during climate negotiations — OCCCM’s objectives around the MRV, carbon accounting, and domestic compliance markets are very relevant for being better prepared to deal with the CBAM world.

Why joining matters now

Are there potential risks in joining the coalition? The coalition is about better alignment of domestic compliance markets and carbon pricing across countries. It does not seek to enforce any mitigation targets or any other decision. However, as discussions evolve, some critical decisions are likely to be made by coalition members. OCCCM’s governance structure consists of high-level meetings (the highest decision-making body), executive-level meetings, thematic working groups and a Secretariat. It is critical to be in the room and shape the discussions rather than respond to the developments as an outsider. The risk is more in being an outsider. That Brazil is a founding member, and other like-minded developing countries are in the process of becoming members, should be a source of comfort for India.

Some aspects of the future world are likely: geopolitics will remain fractured, climate negotiations will continue to meet logjams, the profile of carbon pricing will continue to rise across countries, and efforts from outside the Paris Agreement framework will become increasingly important to achieving the agreement’s goals. In this context, the role played by country-backed climate coalitions will likely grow.

The OCCCM aligns well with India’s decarbonisation choices and offers a useful platform not just to learn about carbon markets, but also to be better prepared to engage with other national carbon pricing architectures and border carbon taxes within the evolving geopolitical landscape. India should consider making this move sooner rather than later.

Vaibhav Chaturvedi is Senior Fellow at the Council on Energy, Environment and Water (CEEW). Catherine Wolfram is the William Barton Rogers Professor of Energy Economics at the MIT Sloan School of Management, U.S. The views expressed are personal