India-Japan Joint Credit Mechanism: A New Step in Carbon Trading and Green Investment

Why in NEWS ?

• India and Japan have signed a Joint Credit Mechanism (JCM) under Article 6.2 of the Paris Agreement.
• Its objective is to promote carbon trading, green investment, and sustainable innovation.
• The agreement provides India with a strategic option to strengthen its manufacturing and clean energy sectors, especially amid U.S. tariffs and China’s rare earth restrictions.

Background and Strategic Significance

• This bilateral agreement is between India’s Ministry of Environment, Forest and Climate Change and the Government of Japan.
• It is part of long-term agreements worth 10 trillion yen (approximately ₹6 trillion).
• Key focus areas include artificial intelligence, defense, semiconductors, and critical minerals.
• The agreement will help enhance India’s manufacturing and clean energy capacity in the context of U.S. tariffs and China’s rare earth export restrictions.

Challenges in Rare Earth Supply Chains

• China’s April 2025 restrictions on the export of rare earth elements such as Samarium, Gadolinium, and Terbium disrupted the global supply.
• India has promoted domestic mining and processing, but developing a stable supply chain remains technically and environmentally challenging.

Carbon Trading and Climate Finance

• Under the JCM, India-Japan bilateral carbon credit trading will be promoted.
• This will aid in reducing greenhouse gas emissions, facilitate decarbonization technology transfer, and help achieve climate goals.
• Global climate finance negotiations are stalled due to the U.S. withdrawal from the Paris Agreement, increasing the importance of JCM.

Role of COP30

• COP30, to be held in Belém, Brazil, will primarily discuss rules for global carbon markets.
• So far, only 23 countries have submitted updated climate pledges (NDCs).
• The India-Japan model demonstrates that bilateral cooperation can complement global climate negotiations.

India’s Domestic Carbon Market

• India launched its Carbon Credit Trading Scheme in 2023.
• A National Designated Authority has been established to monitor emission trading.
• Under the JCM, Japanese investments will support the implementation of clean energy technologies.
• This supports India’s goal of achieving net-zero emissions by 2070.

Key Points for Examination

• Article 6.2 allows countries to achieve their NDCs through flexible agreements.
• It promotes technology transfer and capacity building.
• It facilitates the flow of financial resources to developing countries.
• Under Article 6.2, developing countries can generate and trade Internationally Transferred Mitigation Outcomes (ITMOs).