Beyond the Deal: How India’s Bilateral Carbon Markets Can Forge a New Legacy of Integrity and Ambition 

India’s pioneering bilateral carbon credit deal with Japan under Article 6.2 of the Paris Agreement marks a significant entry into global carbon trading, but to ensure its success and avoid the pitfalls of past offset markets, it must rigorously adopt the core lessons of integrity and ambition from the centralized Article 6.4 mechanism.

This means embedding conservative crediting baselines to prevent over-issuance, implementing mechanisms like automatic credit cancellation to ensure real global emission reductions, and establishing a clear, predictable national framework for authorizing international credit transfers to protect India’s own climate targets.

By proactively integrating these stringent standards from the global model into its bilateral agreements, India can build a credible and high-value carbon market that mobilizes finance, safeguards its developmental and environmental goals, and positions the country as a standard-setter for quality in climate action.

Beyond the Deal: How India’s Bilateral Carbon Markets Can Forge a New Legacy of Integrity and Ambition 

India’s recent bilateral carbon credit agreement with Japan isn’t just another diplomatic handshake; it’s the first brick in a new economic and environmental frontier. Under Article 6.2 of the Paris Agreement, this deal allows Japan to fund emission-reduction projects in India and claim the resulting credits, creating a blueprint for future partnerships. 

But as India stands at this crossroads, a critical question emerges: Will it replicate the pitfalls of past carbon markets, or will it build a new, more credible system? The answer lies not in the bilateral nature of these deals, but in how willingly India learns from the emerging rulebook for the centralised global carbon market under Article 6.4. 

The ghosts of carbon markets past—characterised by over-credited projects and questionable environmental benefits—loom large. For India to truly mobilise climate finance and cement its position as a global climate leader, it must proactively embed the twin pillars of integrity and ambition into the very fabric of its bilateral agreements. 

The Ghost of Markets Past: Why Integrity is Non-Negotiable 

The precursor to Article 6, the Clean Development Mechanism (CDM) under the Kyoto Protocol, serves as a cautionary tale. While well-intentioned, it was often plagued by a lack of stringent oversight. Projects were accused of using inflated “business-as-usual” baselines, meaning they received credits for reductions that would have happened anyway. This “additionality” problem eroded trust and devalued credits, creating a market where volume sometimes trumped verifiable impact. 

The new centralised system under Article 6.4 is being designed explicitly to exorcise these ghosts. Its progress, one of the few bright spots of COP29, offers a masterclass in building credibility. India’s bilateral deals can integrate these lessons in three key areas: 

• The Art of the Conservative Baseline: The core innovation of A6.4 is the distinction between a “business-as-usual” baseline and a more stringent “crediting baseline.” Instead of crediting against a hypothetical, high-emission scenario, projects will be measured against a lower, more conservative threshold. This automatically reduces the total number of credits issued, ensuring that each credit represents a more significant, real-world reduction. For India, adopting similarly conservative baselines in its bilateral methodologies would send a powerful signal to the market that its credits are gold-standard. 

• The Automatic Ambition Mechanism: A6.4 mandates that 2% of all credits generated are cancelled outright. This isn’t a tax; it’s a built-in engine for raising global ambition. These retired credits cannot be used by any country to meet its climate targets, ensuring that the net effect of the carbon market is a genuine reduction in atmospheric CO2. While bilaterals may not have a supranational body enforcing this, India could negotiate a similar principle—for instance, dedicating a small percentage of credits from each project to its own, uncompensated climate account. 

• A Fortress of Technical Rigour: The A6.4 rulebook is delving deep into complex but critical concepts like suppressed demand (ensuring developing nations aren’t penalised for their low current energy use), permanence (guarding against reversals, especially in forestry projects), and leakage (preventing emissions from simply shifting elsewhere). By pre-emptively developing robust national standards on these issues, India can assure partners that its A6.2 projects are not just effective, but bulletproof to criticism. 

The Sovereignty Puzzle: Protecting India’s National Climate Goals 

Perhaps the most significant strategic consideration for India lies in the accounting of these carbon credits. India’s nationally determined contribution (NDC) includes a clear target: reducing the emissions intensity of its GDP by 45% by 2030. 

Herein lies a potential paradox: if a solar farm in Rajasthan, funded by Japan, sells its resulting carbon credits abroad, Japan gets to count that emission reduction towards its target. India, the host country, cannot. If enough such projects sell their credits internationally, India could theoretically find itself short of meeting its own NDC, despite the physical emissions reduction occurring on its soil. 

This is where the A6.4 framework provides a crucial solution: Authorisation. 

The authorisation process gives the host country (in this case, India) sovereign control over how credits are used. It can decide to: 

• Authorise credits for international transfer: The buyer country uses them for its NDC. 

• Not authorise them: India retains the right to count the reduction towards its own target. 

• Issue a corresponding adjustment: This ensures that when a credit is transferred, India adds that emission unit back to its own inventory to avoid double-counting, maintaining the environmental integrity of the system. 

For bilateral deals to work, India must establish a clear, transparent, and predictable national authorisation framework. Investors and partner nations need certainty. The rules of the game cannot change mid-stream. Learning from A6.4, India should pre-define the sectors and project types where it is willing to authorise international transfers, perhaps prioritising technologies that are not yet commercially viable without carbon finance. 

Forging the Future: A Roadmap for India’s Bilateral Strategy 

The Japan deal is the starting gun, not the finish line. To build a thriving and respected bilateral carbon market, Indian policymakers must now move with purpose. 

• Develop Homegrown Methodologies, Globally Aligned: India should swiftly develop specific project methodologies for the technologies it has approved under A6.2. These should not be created in a vacuum but should reflect the highest standards being debated under A6.4. This alignment will make Indian credits more desirable and defensible. 

• Embrace Scrutiny as a Feature, Not a Bug: The article rightly points out that “many watchdogs” are now critically assessing every deal. India should welcome this. Proactively publishing project data, baseline calculations, and authorisation decisions can transform perceived vulnerability into a badge of transparency and quality. 

• Think Strategically, Not Just Transactionally: Every bilateral deal is more than a financial transaction; it’s a strategic partnership. India should leverage these agreements not only for finance but also for technology transfer and capacity building, ensuring that the decarbonisation journey delivers on the twin goals of development and climate mitigation. 

Conclusion: From Follower to Standard-Setter 

The global carbon market is being rebuilt from the ground up. India, with its vast potential for low-cost emission reductions, is not just a participant but a potential architect of its future. By looking to the centralised A6.4 system not as a separate entity but as a repository of hard-earned wisdom, India can infuse its bilateral agreements with unparalleled integrity. 

The goal is not merely to sell carbon credits, but to become a trusted source of high-integrity climate action. By doing so, India can secure the finance it needs, safeguard its own climate targets, and ultimately, ensure that every tonne of CO2 reduced under its watch is a genuine step towards a safer planet. The lesson is clear: in the new carbon economy, quality will always trump quantity.