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Carbon credit trading and India's green transition

Author

Listed:
  • Saurav Kumar

    (Indira Gandhi Institute of Development Research)

  • Taniya Ghosh

    (Indira Gandhi Institute of Development Research)

  • Shesadri Banerjee

    (Reserve Bank of India)

Abstract

This study examines the macroeconomic dynamics under the recently announced intensity based Carbon Credit Trading Scheme (CCTS) in India using an Environmental Dynamic Stochas tic General Equilibrium framework. The policy freely allocates carbon certificates in the primary carbon market and aims to incentivize their trading by monetizing emission intensity reductions in the secondary carbon market. Distinguishing between thermal power and green electricity we find that the incentive mechanism of this policy promotes the adoption of green electricity and reduces emissions in the long term. Although phasing out the use of fossil fuels remains a challenge in the short term, an ambitious intensity target, coupled with cheaper green electricity, can accelerate the energy transition. In addition, it stabilizes the economy against volatility in fossil fuel prices. Our results highlight that the rate-based CCTS outperforms the price-based carbon tax policy in promoting the energy transition while sustaining the growth objectives.

Suggested Citation

  • Saurav Kumar & Taniya Ghosh & Shesadri Banerjee, 2025. "Carbon credit trading and India's green transition," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2025-027, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2025-027
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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

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