India’s domestic carbon market can help achieve large CO2 emission reductions without compromising economic growth, and three recent market-driven policies in India, US and EU show use trade interventions will be increasingly used by countries to drive mitigation of CO2 emissions in different parts of the world, Michael Greenstone, Milton Friedman Professor in Economics at the University of Chicago, told HT in an interview.

India’s Parliament has passed the Energy Conservation (Amendment) Bill 2022 which has a provision of creating a carbon market to help achieve India’s climate commitments under the Paris Agreement. Do you think such a market will be effective in reducing emissions?

It would be a remarkable step for India. It will help achieve, if run efficiently, very big reductions in emissions. And this will be achieved without unduly compromising economic growth which is very critical for India. It’s truly remarkable, and in striking contrast to the US, my own State which seems more comfortable with more expensive approaches. I think this would establish India as a real leader.

How does such a domestic carbon market work?

The way it works is the Indian government would say that there is a maximum amount of CO2 emissions that are covered in the Indian economy. And then rather than just say which industry should emit how much, it lets them sort it out. So, the industries that find it very difficult and expensive to reduce emissions pay industries that find it inexpensive and they both benefit from that trade. But the key thing is that from the climate perspective, the total emissions are assured and equal to whatever the gap has been set out. It’s for the firms to achieve the goal collectively and in a less expensive manner.

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