Could emissions trading help clean India’s air?
In its journey towards becoming the fourth-largest economy in the world, India has had to balance rapid economic growth with environmental conservation. Urbanisation, rising energy demand, and expanding mobility have contributed to increased pressure on air quality, particularly in cities. To keep pace with economic development, India’s environmental governance has continued to adapt and expand. Flagship initiatives such as the National Clean Air Programme (NCAP), Bharat VI fuel standards, Pradhan Mantri Ujjwala Yojana (PMUY), and industrial reforms in the National Capital Region (NCR) have contributed to gradual improvements in air quality across multiple sectors. However, these measures remain administratively driven, relying on government funding and enforcement by state agencies. An important alternative mechanism to address air pollution is market-based tools that reward verified emission reductions and innovation.
Market-based mechanisms (MBMs) represent this strategic shift, offering industries the flexibility to reduce emissions cost-effectively while supporting economic growth. In India, MBMs take three primary forms: Renewable Energy Certificate (REC), energy efficiency trading and emissions trading. The energy efficiency trading includes the Perform, Achieve and Trade (PAT) scheme, which sets energy-use reduction targets for energy-intensive industries, allowing excess savings to be traded as certificates. The REC enables renewable energy producers to earn and trade certificates to help meet their Renewable Purchase Obligations (RPOs).
The latter is the Emissions Trading System (ETS), which limits total emissions for certain sectors and allows companies to buy or sell permits, enabling cleaner firms to benefit by using less and selling excess permits. It is important to distinguish between carbon trading systems, which regulate greenhouse gas emissions such as CO2 to meet long-term climate goals, and air-pollutant ETS, which target local and regional pollutants such as particulate matter (PM), sulphur dioxide (SO2), and nitrogen oxides (NOx) to deliver near-term air-quality and public-health benefits. While ETS regulates emissions at the source rather than ambient concentrations directly, sustained reductions in primary pollutants and PM precursors can significantly lower ambient PM2.5 exposure, particularly in densely populated urban and industrial clusters.