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.

The US has passed the Inflation Reduction Act which provides clean energy subsidies to American companies, and the EU on Tuesday made a deal to impose a carbon dioxide emissions border tariff on goods from countries that are not mitigating emission’s by EU standards. India is going to set up a domestic carbon market soon. Do you think trade now will be the key tool to deal with the climate crisis?

A tonne of emissions in Mumbai does the same damage as a tonne of emissions in Memphis. If the world is going to make progress on reducing emissions the raw truth is that reductions have to occur everywhere in the world. There are very few mechanisms to hold countries to their promises. You can name and shame them that hasn’t worked very well, you could have war and invade a country who you feel did not reduce their emissions enough. That would be very hard to justify (laughs). What’s left are mechanisms like the border trade adjustments that influence behaviour through trade. What you are seeing is people no longer being satisfied with making voluntary agreements at COPs (UN Climate negotiations) and trying to put some teeth behind these agreements. That’s what the European policy is about. I expect other countries will introduce similar policies over time.