Why India’s carbon market needs a price stability mechanism for its new Carbon Credit Trading Scheme

India's Carbon Credit Trading Scheme, launching compliance in 2026, uses an intensity-based baseline-and-credit system across nine industrial sectors. The authors warn that features like indefinite banking and modest initial targets—averaging a 3% reduction—could lead to credit surpluses and price collapses, similar to experiences in Alberta, Australia, and the early EU ETS. To avoid these pitfalls, the paper proposes a tailored Price or Supply Adjustment Mechanism (PSAM) consisting of consignment auctions, vintage-based credit rules, and refined price corridors to maintain market discipline and investment-grade price signals.

• India's Carbon Credit Trading Scheme is a national carbon market covering nine industrial sectors, utilizing an intensity-based baseline-and-credit system designed to balance climate goals with economic growth by targeting emissions per output unit.
• The scheme faces stability risks because initial emissions intensity targets will only result in an average reduction of 3% across sectors, and the allowance of indefinite banking could lead to large credit surpluses that dampen prices and discourage new investments.
• International precedents show that the absence of early stability mechanisms leads to ineffective price discovery; for example, Alberta's TIER system saw prices fall 40% below the official price due to over 53 million surplus credits by 2023, and the EU ETS operated for 14 years before creating its Market Stability Reserve.
• The authors propose a tailored Price or Supply Adjustment Mechanism (PSAM) for India comprising three elements: consignment auctions to manage supply and build reserves, vintage-based credit rules to limit the compliance life of older credits, and refined price corridors with activation zones to proactively manage price swings.

APA

Shrivastava, S., & Trivedi, S. (2025). Why India’s carbon market needs a price stability mechanism for its new Carbon Credit Trading Scheme. World Economic Forum. https://www.weforum.org/stories/energy-transition/why-india-s-carbon-market-needs-a-price-stability-mechanism/

Chicago

Shrivastava, Subham, and Saurabh Trivedi. Why India’s carbon market needs a price stability mechanism for its new Carbon Credit Trading Scheme. World Economic Forum, 2025. https://www.weforum.org/stories/energy-transition/why-india-s-carbon-market-needs-a-price-stability-mechanism/.

Wikipedia

{{cite report |last1=Shrivastava |first1=Subham |last2=Trivedi |first2=Saurabh |title=Why India’s carbon market needs a price stability mechanism for its new Carbon Credit Trading Scheme |publisher=World Economic Forum |date=10 November 2025 |url=https://www.weforum.org/stories/energy-transition/why-india-s-carbon-market-needs-a-price-stability-mechanism/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{shrivastava2025why, author = {Shrivastava, Subham and Trivedi, Saurabh}, title = {{Why India’s carbon market needs a price stability mechanism for its new Carbon Credit Trading Scheme}}, institution = {World Economic Forum}, year = {2025}, month = nov, url = {https://www.weforum.org/stories/energy-transition/why-india-s-carbon-market-needs-a-price-stability-mechanism/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }