India-Japan Joint Credit Mechanism Boosts Climate Action
India and Japan recently signed a memorandum of cooperation on a Joint Credit Mechanism (JCM) under Article 6.2 of the Paris Agreement. This partnership aims to strengthen carbon trading, increase investment, and accelerate sustainable innovation. The agreement is amid rising US tariffs on Indian goods and China’s rare earth export restrictions. It offers India a strategic alternative to enhance its manufacturing sector and green technology efforts.
Background and Strategic Importance
The JCM was signed by India’s Ministry of Environment, Forest and Climate Change and the Government of Japan. It coincides with long-term agreements worth ¥10 trillion (approximately Rs 6 trillion) covering artificial intelligence, defence, semiconductors, and critical minerals. The pact comes as the US imposes a 50% tariff on Indian exports and has exited the Paris Agreement. India’s growing partnership with Japan helps offset these challenges and supports its goal to become a global manufacturing hub and leader in sustainable innovation.
Rare Earth Minerals and Supply Chain Challenges
China’s April 2025 ban on medium and heavy rare earth exports, including samarium, gadolinium, terbium, and others, has disrupted global supply chains. Although China later eased restrictions on India for permanent magnets, the situation brought into light India’s dependency on China. India is now incentivising domestic manufacturing and processing of rare earth elements. However, building a stable supply chain will take time due to technical and environmental complexities.
Carbon Trading and Climate Finance
The India-Japan JCM facilitates bilateral carbon credit trading to reduce greenhouse gas emissions. It promotes technology transfer and capacity building to meet climate targets. The mechanism operates under Article 6.2 of the Paris Agreement, which allows voluntary international cooperation through carbon markets. This is crucial as global climate finance and technology transfer face deadlocks, especially with the US’s absence from the agreement.
Role of COP30
The JCM’s timing is important ahead of COP30 scheduled in Belem, Brazil. Discussions at COP30 will focus on implementing rules for international carbon markets. So far, only 23 countries have submitted their Nationally Determined Contributions (NDCs). The India-Japan model demonstrates how bilateral cooperation can complement multilateral efforts. It also marks the need for timely creation of joint regulations for carbon trading to ensure transparency and environmental integrity.
Domestic Carbon Market
India launched its Carbon Credit Trading Scheme in 2023 and recently announced a ‘national designated authority’ to manage carbon emissions trading. The JCM will help deploy decarbonising technologies through Japanese investments, contributing to India’s commitment to achieve Net Zero by 2070. Experts view this mechanism as a potential model for other countries seeking innovative climate cooperation methods beyond traditional multilateral frameworks.
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