The Institute for Energy Economics and Financial Analysis (IEEFA) and the Environmental Defense Fund (EDF) have called for the inclusion of Price or Supply Adjustment Mechanisms (PSAMs) in India’s upcoming Carbon Credit Trading Scheme (CCTS) to prevent market imbalance and ensure credible carbon pricing.
The new report highlights that PSAMs can stabilize the carbon market, avoid oversupply, and maintain strong price signals for long-term decarbonisation.
Subham Shrivastava, Climate Finance Analyst at IEEFA, said the absence of limits on credit banking could allow early low-cost reductions to accumulate, leading to supply-demand imbalances and weaker incentives for decarbonisation. He noted that a PSAM is essential to maintain price credibility and align supply control with India’s market framework.
Saurabh Trivedi, Sustainable Finance Specialist at IEEFA, said that rule-based tools such as consignment auctions and vintaging can help manage supply risks while preserving the CCTS’s intensity-based design. He emphasized that such tools bring transparency and predictability to the system, preventing disruptive interventions.
Saloni Sachdeva Michael, Energy Specialist at IEEFA, explained that India’s CCTS links emissions performance with operational efficiency and economic growth. She said this alignment supports India’s industrial development strategy by incentivising cleaner technologies, improved data systems, and cost-effective carbon reductions.
India’s carbon market is a policy-driven mechanism designed to control emissions through defined regulatory supply and demand measures, rather than a conventional free market.
India’s existing Performance, Achieve and Trade (PAT) mechanism laid the groundwork for emissions trading but also revealed design lessons for CCTS. She said dynamic benchmarks, stronger trading infrastructure, and structured auction systems would make the CCTS more effective and sustainable.
IEEFA highlighted the report’s proposal for a vintage-based credit control system, where credits would expire or devalue after a set period. He said a three-year validity window would limit credit surplus, protect price signals, and promote timely emission reductions.
The IEEFA report said introducing PSAM early in the lifecycle of the CCTS would signal market stability and long-term commitment. Embedding such mechanisms from the start would ensure India’s carbon market evolves with credibility, resilience, and alignment with the country’s net-zero transition goals.
Faheema P