WHAT THE BRICS CARBON MARKET PARTNERSHIP NEEDS

05 Nov 2026

Tags: International Relations   Global Bodies   Institutional structures

Source: The Hindu

Context: The 18th BRICS Summit (September 12, New Delhi) reaffirmed members' commitment to implementing the Memorandum of Understanding (MoU) on the BRICS Carbon Markets Partnership.

• The commitment currently focuses on capacity-building and experience-sharing, without a common trading framework, targets or timeline.
• The MoU was acknowledged at the 2025 Rio Summit. With India's BRICS presidency entering its final quarter, the priority is to establish a common rulebook rather than a common trading platform.

Existing Carbon Markets in BRICS Countries

• Voluntary carbon markets: Eight BRICS members reportedly operate voluntary markets. Brazil, China, India and Indonesia host over one-third of globally registered carbon credit projects.
• China: Its Emissions Trading System (ETS) expanded to include steel, cement and aluminium through its 2024–25 allocation plan.
• India: The Carbon Credit Trading Scheme (CCTS) has notified emission-intensity targets for 490 entities across nine sectors and introduced an offset mechanism.
• Brazil: The 2024 law established the Brazilian Greenhouse Gas Emissions Trading System (SBCE), based on a cap-and-trade model.
• Key limitation: Despite the development of domestic carbon markets, none of the BRICS members' markets is linked to another.

Divergence in Domestic Carbon Market Frameworks

• Emission allocation: China and India use output-based emission-intensity benchmarks, whereas Brazil is establishing an absolute emissions cap.
• Different offset-credit rules:
  • China: Its compliance market accepts only China Certified Emission Reduction credits.
  • India: Accepts only projects initiated after January 1, 2025, under its offset mechanism and requires project exclusivity.
  • Brazil: Will accept credits based on methodologies accredited by a yet-to-be-constituted authority.
• Different legal status of carbon units:
  • Brazil: The securities regulator oversees its carbon market.
  • India: Carbon Credit Certificates are traded on power exchanges under regulations issued by the Central Electricity Regulatory Commission (CERC).
• Implication: The same quantity of emission reduction represents different legal instruments across BRICS countries, making market integration difficult.

Need for Common Measurement, Reporting and Verification (MRV) Standards

• First priority: Establish common MRV standards to ensure that emission reductions are measured, reported and independently verified consistently across member countries.
• Existing foundation: BRICS' 2025 Principles for Fair, Inclusive and Transparent Carbon Accounting recommend:
  • Comparing producers with peers operating under similar conditions.
  • Using granular default emission values.
  • Developing interoperable systems that generate comparable outcomes.
• Implementation gap: The New Delhi Declaration does not carry these principles forward, although it supports interoperable standards for low-emission hydrogen and cooperation among national standards bodies.

External Pressure: Carbon Border Adjustment Mechanisms

• European Union (EU): Its Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase in January 2026.
• United Kingdom (UK): Its CBAM is scheduled to follow in January 2027.
• Coverage: Carbon-intensive imports such as steel, aluminium, cement, fertilisers and hydrogen.
• Working principle: Importers face a carbon charge based on embedded emissions, with credit for carbon prices paid in the country of origin where supported by verified evidence.
• India–UK example: In August 2026, the UK recognised India's CCTS. However, relief depends on verification through a form completed by an ISO 14065-accredited verifier.
• Challenge for developing countries: Each exporting country negotiates separately, while exporters without verified emission data may face punitive default emission values.
• Implication: Common BRICS accounting standards could strengthen members' collective position in negotiations with foreign regulators.

Proposed BRICS Common Rulebook: The partnership should prioritise three measures:

• Common monitoring rules: Establish harmonised monitoring standards consistent with ISO 14064, particularly for sectors exposed to carbon border adjustments.
• Mutual recognition of verifiers: Recognise verifiers accredited by members' national accreditation bodies, similar to BRICS cooperation on authorised economic operators in customs.
• Harmonised registry data: Standardise carbon registry data fields to enable interoperability and reliable tracking of carbon credits.

Pilot Cross-Border Carbon Credit Exchange

• Legal basis: Article 6.2 of the Paris Agreement permits bilateral transfers of mitigation outcomes between countries through internationally transferred mitigation outcomes (ITMOs), subject to corresponding adjustments.
• Existing example: India already has a Joint Crediting Mechanism with Japan.
• Proposed approach: Two or three BRICS members could:
  • Mutually recognise carbon-credit methodologies already approved domestically.
  • Allow a capped volume of authorised carbon units from partner registries within their domestic offset limits.
• Benefits: A limited pilot would test the practical challenges of cross-border carbon trading without requiring complete integration of domestic markets.

Challenges in Implementing Cross-Border Trading

• Corresponding adjustments: The host country must subtract transferred emission reductions from its own accounting towards its Nationally Determined Contribution (NDC), preventing both countries from claiming the same reduction.
• Financial settlement: Cross-border payments would involve capital account regulations and the legal classification of carbon units, requiring coordination with the BRICS Payment Task Force.
• Double counting: Registries must exchange unique serial numbers and retirement data to prevent double issuance or use of the same carbon credit.
• Institutional coordination: Each implementation challenge should be converted into a specific regulatory drafting issue with an identified institutional authority.

Role of Existing BRICS Institutions

• New Development Bank (NDB): Could establish a shared carbon registry data facility or a purchasing facility for pilot carbon units.
• Adaptation financing: A portion of proceeds from intra-BRICS carbon transfers could be directed towards climate adaptation, similar to the benefit-sharing approach under the Paris Agreement's Article 6.4 mechanism.
• Inclusive participation: Such financing would provide BRICS members with relatively limited mitigation potential an incentive to participate in the partnership.

Challenges to Full Integration of BRICS Carbon Markets

• Unequal market size: China's large carbon market could dominate price formation and become the principal price-setter.
• Geopolitical constraints: Sanctions could complicate cross-border financial settlements.
• Economic competition: Several BRICS members compete in exporting steel and aluminium, creating divergent economic interests.
• Regulatory differences: Differences in domestic emission targets, offset methodologies and legal frameworks make complete market linkage difficult.

Way Forward

• Prioritise common standards: Develop common MRV rules and harmonised carbon accounting rather than immediately pursuing a unified trading platform.
• Start with pilot projects: Test cross-border carbon credit transfers among two or three willing members under Article 6.2 of the Paris Agreement.
• Preserve regulatory autonomy: Allow members to retain domestic compliance frameworks while improving compatibility between their carbon markets.
• Strengthen collective bargaining: Use common and verifiable accounting standards to negotiate with external carbon regulators, particularly the EU and UK.
• Institutionalise cooperation: Leverage the New Development Bank and existing BRICS mechanisms for registry interoperability, financial settlement and adaptation financing.

Conclusion: The BRICS Carbon Markets Partnership should move beyond capacity-building towards a common rulebook based on harmonised MRV standards, mutual recognition of verifiers and pilot cross-border credit transfers. This can strengthen climate cooperation, protect developing-country exporters and preserve national regulatory autonomy.

UPSC Value Addition – Important Concepts

Concept	Meaning
Carbon credit	Tradable certificate representing one tonne of carbon dioxide equivalent (CO₂e) reduced or removed.
Carbon market	Market where emission allowances or carbon credits are bought and sold.
Compliance market	Legally regulated market where entities must meet prescribed emission limits or obligations.
Voluntary carbon market	Market where organisations voluntarily purchase carbon credits to offset emissions.
Cap-and-trade	Regulator fixes an overall emission limit and allows trading of emission allowances.
Carbon offset	Reduction or removal of emissions used to compensate for emissions occurring elsewhere.
Corresponding adjustment	Accounting adjustment under Article 6 to prevent two countries from claiming the same emission reduction.
MRV	Measurement, Reporting and Verification of greenhouse gas emissions and emission reductions.
NDC	Nationally Determined Contribution: A country's climate commitments under the Paris Agreement.