IEEFA and EDF recommend early stability mechanism for India’s carbon market
VALLEY CITY, Ohio, United States, 30 October 2025: The Institute for Energy Economics and Financial Analysis (IEEFA) and Environmental Defense Fund (EDF) have recommended the early adoption of a Price or Supply Adjustment Mechanism (PSAM) in India’s forthcoming Carbon Credit Trading Scheme (CCTS). Through a report released by IEEFA, it said that PSAMs would help manage supply-demand imbalances and strengthen the credibility of carbon pricing in the scheme.
IEEFA said the CCTS, like other emissions trading systems, risks prolonged periods of low prices and supply surpluses unless stability mechanisms are built in from the start. IEEFA said markets without timely intervention tools have historically required expensive and politically challenging reforms.
IEEFA stated that the proposed PSAM is tailored to India’s scheme and includes a consignment auction system, vintage-based credit classifications, and a price corridor to guide interventions. The IEEFA report emphasised that this framework is designed to be administratively efficient and operate within existing institutional capacity.
Subham Shrivastava, co-author of the report and climate finance analyst at IEEFA, said, “In India’s CCTS, the need for a PSAM is significant. While credit banking offers flexibility, the absence of limits allows credits from early, low-cost reductions to accumulate, which could lead to supply-demand imbalances, depressed prices and weaker long-term decarbonisation incentives.”
Saurabh Trivedi, co-author of the report and sustainable finance specialist at IEEFA, added, “Consignment auctions and vintaging offer pragmatic, rule-based tools to address risks without disrupting the core intensity-based design, while offering a transparent lever for supply control.”
Saloni Sachdeva Michael, co-author of the report and energy specialist at IEEFA, stated, “In India, where accelerating industrial development is a strategic priority, this alignment between emissions performance and broader economic efficiency offers a compelling rationale for adopting emissions trading.”
IEEFA said the ability to bank surplus Carbon Credit Certificates introduces flexibility but can also create risks. According to the Institute, in the absence of limits, surplus accumulation from early overperformance could weaken price signals and discourage long-term decarbonisation.
Shrivastava said, “India’s CCTS, like all emissions trading systems, is not a market in the classical sense. It is a policy instrument shaped by institutional and market design to control emissions through regulatory definitions of supply, demand, and compliance.”
IEEFA said the report builds on lessons from India’s Performance, Achieve and Trade (PAT) mechanism, and recommends features such as dynamic benchmarks, trading infrastructure and strategic auctions. Michael added, “Building on PAT’s foundation, the CCTS can incorporate dynamic benchmarks, robust trading infrastructure and strategic auction mechanisms to create a system that is effective and politically sustainable.”
Trivedi said the proposed vintaging system would restrict credit use to a defined time window, helping prevent price distortions. “For example, if a three-year window is chosen, then 2028 emissions could be offset using credits from 2028, 2027 or 2026, but not earlier. This would limit surplus buildup, preserve price signals, and support timely emission cuts,” he said.
IEEFA concluded that drawing on international examples such as the EU ETS and Australia’s Safeguard Mechanism, embedding a PSAM early would help avoid costly reforms and strengthen market confidence. Shrivastava said, “Embedding a PSAM early in the lifecycle of CCTS could signal that India’s carbon market is built for durability, and long-term effectiveness. It lays the foundation for a market that can scale with ambition and support India’s broader net-zero transition.”