India needs a strong ecosystem to turn climate goals into industrial reality. Export markets like the EU and UK now use carbon border mechanisms, making price gaps a challenge. Experts said India must go beyond carbon pricing by using targeted support, affordable finance, and shared infrastructure for clean technology.
CCC pricing will also help exports to markets such as the EU and UK, whose carbon border adjustment mechanisms (CBAMs) require the price differential of embedded emissions to be paid as a price for market access. The UK has recognized that the CCC price can be treated as a deductible for eligible products. But its immediate significance must not be overstated.
Exporters will still bear the brunt of a carbon price gap with the UK market, estimated at $70-80 per tonne. CBAM frameworks in both the EU and UK are also expected to expand their reach to downstream products of steel and aluminium, other sectors like organic chemicals, and to transport and indirect emissions.
What we need beyond CCTS: Industrial decarbonization requires a more complex policy mix beyond price signals for the deployment of emerging technologies, support infrastructure and access to affordable finance.
India has already demonstrated the value of targeted support in building clean-technology ecosystems through its production-linked incentive scheme for solar PV modules and its Sight programme for green hydrogen production and electrolyser manufacturing.
Similar dedicated frameworks are needed for carbon capture utilization and storage (CCUS), hydrogen-ready industrial equipment, industrial electrification, advanced recycling and other low-carbon process technologies.
A Niti Aayog report earlier this year on Scenarios Towards Viksit Bharat and Net Zero estimates that we need $22.7 trillion in cumulative investment by 2070 and recommends strengthening transition finance for hard-to-abate sectors through verified transition plans, wider use of transition and sustainability-linked bonds, expanded guarantees and blended-finance mechanisms to de-risk investments, etc.
Similarly, Niti Aayog’s MSME Green Transition Roadmap calls for dedicated green-finance mechanisms, credit enhancement and risk-sharing instruments along with common technology, testing, certification and advisory infrastructure to reduce the cost and complexity for smaller firms.
Global experience is informative. Low-carbon industrial clusters such as the UK’s East Coast Cluster and HyNet programmes have lowered costs through shared infrastructure, risk-sharing mechanisms and coordinated public support. Sweden’s Hybrit is an example of a state-supported, industry-led integrated value chain initiative linking green hydrogen—produced using fossil-free wind and hydropower—to iron and steelmaking processes to eliminate carbon emissions.
The Reserve Bank of India’s (RBI) Priority Sector Lending Directions also need expansion beyond renewable energy projects to recognize industrial decarbonization investments. Tax policy can reinforce this shift. India currently provides accelerated depreciation for specified energy-saving, waste-heat recovery, pollution-control, recycling and renewable-energy equipment.
As industrial decarbonization technologies evolve, the eligible list could be periodically updated to include emerging low-carbon technologies needed by hard-to-abate sectors.
A national decarbonization fund could also play a crucial role in supporting technology deployment and prioritizing sectors with the highest abatement costs and greatest strategic importance.
As for the question of where the resources will come from, here are some thoughts:
First, a range of implicit carbon costs already exists in the form of coal levies, fuel taxes and electricity duties that influence behaviour but are not explicitly linked to financing decarbonization. Channelling a portion of these revenues into a dedicated fund would recycle resources from carbon-intensive activities into cleaner alternatives while improving coherence across instruments that operate in silos.
Second, India can leverage opportunities under Article 6 of the Paris Agreement to mobilize finance and technology to enhance bilateral cooperation. Credible carbon accounting methodologies, institutional capacity and a pipeline of investable projects can accelerate the scaling up of such initiatives.
Most importantly, the finance ministry’s draft Climate Finance Taxonomy of 2024 urgently needs to be finalized. A credible taxonomy will serve as a foundational enabler for our climate-finance architecture by providing a common basis for identifying genuine green-transition investments and channelling finance consistent with India’s climate goals.
CCTS provides a price signal. India must now build the rest of the ecosystem that would enable industry to translate climate ambition into industrial reality.
The authors are, respectively, partner, Clarus Law Associates and a Mumbai-based economist.