Energizing the India-Japan Relation

In a move to expedite decarbonization efforts while reducing clean energy costs, Japan and India are finalizing a Joint Crediting Mechanism (JCM). This bilateral framework will allow both nations to share emission reduction credits. It will also aid Japan in fulfilling its climate commitments.

Japan's goal of achieving net zero by 2050 and India's 45% emissions reduction target by 2030 highlight the natural partnership between the two countries in decarbonization and economic growth. With Japanese companies increasingly interested in entering the Indian market as a relocation destination for production bases or as an investment opportunity, this article explores the potential of partnerships in the carbon market sector.

What is the Joint Credit Mechanism?

Under the JCM, Japanese companies will invest in and deploy advanced carbon reduction technologies in India. In return, Japan will receive carbon credits that can offset its emissions or be traded within its national carbon market.

The initiative falls under Article 6.2 of the Paris Agreement, which ensures internationally recognized and verifiable emissions reductions. Once finalized, carbon credits will be officially registered and tracked. Joint committees will be formed to oversee project implementation and to verify credit issuance through the formulation of a detailed report. Consequently, this mechanism will help both countries meet their nationally determined contributions under the Paris framework.

A wide range of sectors, including solar thermal energy, green hydrogen, and sustainable aviation fuel, are expected to benefit from JCM investments.

Originally initiated by Japan, the JCM facilitates the transfer of technical expertise and climate-friendly technologies from developed to developing countries. While developed nations benefit by outsourcing their emissions reductions, often at a lower cost, this supports sustainable development in host countries. It helps mobilize international finance, alleviating the cost burden for the recipient country. Currently, Japan has established similar agreements with 11 other countries, including Indonesia, Kenya, and Vietnam.

An India-Japan Partnership

India and Japan have discussed a JCM partnership since 2014. In 2023, a $600 million USD fund was jointly launched by India's quasi-sovereign wealth fund, the National Investment and Infrastructure Fund, and the Japan Bank for International Cooperation (JBIC) to invest in sustainable projects. JBIC contributed 51% of that total, while the remainder came from India.

*JBIC Governor Hayashi Nobumitsu signs an MOU with the National Investment and Infrastructure Fund Limited of India, establishing the India-Japan Clean and Growth Platform. (©JBIC)*

The fund aimed to invest in sustainable projects in areas such as e-mobility, renewable energy, and waste management. Other key initiatives, such as the Perform, Achieve, and Trade, or "PAT" scheme, have facilitated a long-standing India-Japan collaboration in energy efficiency. This partnership has reduced 10 million tons of CO₂ emissions, saved 25 million tons of oil equivalent energy, and generated $10 billion in investments.

What Are the Benefits?

For a country like India, which is vulnerable to climate change, adopting clean technologies is both essential and urgent. Achieving low or zero carbon emissions necessitates access to these technologies. However, such technologies often come with high upfront costs.

This may exceed what the governments of developing countries can currently fund. They are typically expensive or not widely available. For example, generating electricity from coal is cheaper than using green hydrogen, solar or thermal power, despite the environmental cost. In this context, Japan's role becomes critical. It helps to equalize the cost of clean energy with conventional, polluting sources by subsidizing these technologies.

Today, problems such as a severed supply chain, amid an unstable global situation, have aligned both countries' efforts and broader climate ambitions to build effective carbon markets.

Coal continues to dominate India's power mix due to its lower capital costs. However, with Japanese subsidies, alternatives such as energy storage systems and solar thermal plants could become economically viable. They could thereby accelerate India's energy transition. It has the potential to transform India's energy sector by improving the competitiveness and affordability of renewable energy technologies.

Strengthening India-Japan Strategic Ties

Beyond emissions cuts and costs, the JCM has the potential to generate jobs in both nations by fostering investments in low-carbon technologies. It promises to drive economic growth by creating skilled jobs, becoming a double-edged weapon. India can strategically channel these funds into underdeveloped clean energy sectors, leveraging Japanese expertise to expedite its transition to a low-carbon economy. This aligns with India's dual goals of sustainable development and economic expansion. Meanwhile, Japanese companies gain access to a rapidly growing market for clean technologies.

The initiative is likely to strengthen India-Japan strategic ties. This complements their collaboration in infrastructure, defense, and economic security. It also counterbalances China's growing regional influence, having a ripple effect on different domains of collaboration. However, the ultimate goal is for India to adopt and scale these technologies independently, making JCM a high-stakes and high-impact partnership.

India Fields Itself

India is poised to introduce its long-awaited carbon market by 2026. The market for the sale and purchase of carbon credits does not currently exist in our country. Under this program, those who use fossil fuels or emit carbon would buy carbon credits. Meanwhile, those who use power from non-fossil sources would receive carbon credits that they can sell in the market.

The introduction of carbon credits should incentivize manufacturers to adopt green energy solutions, reducing carbon emissions and enhancing compliance with global regulations. India's strong potential in green hydrogen, energy efficiency, waste management, and biogas also reaffirms Japan's commitment to supporting these initiatives.

*An EMCO Power Plant in India (©Epagemakerwiki)*

Major Roadblocks

There have been significant roadblocks to warming India-Japan relations in the climate domain. The negotiations with India have been ongoing since 2014. They highlight the complexity of such high-stakes climate agreements. Challenges also remain in ensuring that emissions reductions are not double-counted. It will be crucial to uphold the mechanism's credibility and prevent any compromise of its integrity.

Additionally, there is a concern that Japan might use the JCM to delay more decisive domestic climate actions. Critics argue that developed countries should prioritize cutting emissions at home first, as it feeds into domestic political debate on climate. However, supporters of the mechanism contend that international cooperation through frameworks like the JCM facilitates faster and more cost-effective global progress toward climate goals.

Furthermore, long-term sustainability is another critical issue. India must ultimately develop the capability to adopt and scale these technologies independently. This will require not only funding but also knowledge transfer, training, and the development of infrastructure. Without such capacity-building, the JCM risks becoming a short-term fix rather than a foundation for lasting transformation. India must cultivate the ability to sustain and expand these technologies over time.

Conclusion

India is the world's third-largest GHG emitter, primarily due to its coal and industrial activities. The trend with other JCM partnerships, such as those in Vietnam, already shows achievements in measurable CO₂ reductions in key sectors. A similar trajectory can also be expected for India by targeting high-emission areas with solutions like sustainable aviation fuel and green hydrogen.

Although the exact emissions reduction targets under the India-Japan JCM have not yet been disclosed, the potential is significant. The Japan-India JCM could serve as a global blueprint for climate cooperation if implemented effectively. It has the potential to reduce the cost of climate action, accelerate technology transfer, and strengthen diplomatic ties. That helps both nations move closer to their climate goals.

Focus is on the potential of green ammonia, hydrogen, and solar energy in industrial transformation, as well as the importance of carbon dioxide removal technologies. There is a need for technology transfer, financing, and strategic partnerships to boost sustainability efforts.

Both nations are committed to climate action. Innovative technologies and strong policy frameworks can create mutually beneficial pathways toward decarbonization. Japan's approach to carbon markets aligns well with India's sustainability goals. Japan's commitment to strengthening investment ties with India through the JCM framework, which promotes energy security and a low-carbon future, is well-timed.

By aligning sustainability objectives with strategic interests, this partnership can show how developed and developing countries can collaborate meaningfully to address one of the most significant challenges of our time: climate change.

Author: Varuna Shankar