Designing India's Carbon Market: A Comparative Analysis of Domestic Instruments and International ETS Models

Energy efficiency is emphasized as the "first fuel" due to the growing global energy consumption and its effects on the climate. Energy is essential to economic growth and climate action in India, where it accounts for 72.4% of total GHG emissions, with industry using 52% of energy and emitting 22% of GHG. Financial limitations, including unclear payback period, hidden expenses, a lack of understanding, and conflicting motivations, are some obstacles that prevent the widespread adoption of efficient technology.India implemented the Renewable Purchase Obligation (RPO) to require using renewable energy sources and the Perform, Achieve, and Trade (PAT) program to encourage industrial energy efficiency. Both had problems with implementation and policy, despite their good intentions. Furthermore, an extension of PAT, the Indian Carbon Market (ICM), attempts to close these gaps by incorporating energy efficiency into a larger carbon trading framework. This study assesses PAT, RPO, and ICM, locating systemic bottlenecks and using knowledge from the global carbon market to examine benefits, drawbacks, and restrictions. The excess of certificates, which compromises market efficiency, is a fundamental problem in PAT and RPO. This is addressed by International Emission Trading Systems (ETS) through instruments such as Banking and Market Stability Reserves (MSR), which we suggest be adopted by ICM.Furthermore, inadequate target-setting makes overstock worse. In response, we suggest employing Marginal Abatement Cost Curves (MACC) to improve the integrity and performance of the ICM through accurate and economical sectoral and entity-level target formulation.