Discuss the problems in linking intensity-based and cap-based emissions trading systems. What lessons do they hold for India's Carbon Credit Trading Scheme?

India's Carbon Credit Trading Scheme (CCTS), 2023 sets output-based emission-intensity targets for 490 obligated entities [1]. Cap-based systems such as the EU ETS work differently: they fix an absolute ceiling on total emissions. "Linking" means each system accepts the other's units. The BRICS Carbon Markets Partnership MoU [2][3] has made this question urgent. Linking is possible, but only after the two designs are brought closer together.

Problems in linking

• Environmental integrity: An intensity credit is not always one real tonne less of emissions. Total emissions can still rise as output grows. When such credits flow into a capped system, that system's cap is effectively raised [4].
• Output-expansion incentive: Under intensity targets, firms can earn more surplus credits by producing more. Linking can therefore push global emissions up [4].
• Design mismatch: Coverage, price controls, MRV (monitoring, reporting and verification) and registries all differ between systems. California and Québec linked only after aligning these rules [5].
• Costly safeguards: The capped side may limit how many intensity-based units it accepts, or it may tighten its own cap. Either way, intensity credits are accepted only in part [6].
• Weak institutions: The BRICS MoU covers only capacity-building and experience-sharing [2]. The New Delhi Declaration repeated "implement" but set no timeline [3].

Intensity target → output ↑ → total emissions ↑ → surplus credits sold
  → buyer emits above cap → net emissions ↑ on BOTH sides

Fig: How linking can lose integrity

Lessons for India's CCTS

• Make targets stringent: Credits must reflect real cuts, especially in steel, cement and aluminium. These sectors are also exposed to the EU's CBAM.
• Rulebook before platform: Agree common MRV standards and registries that can work together first. Link later, following the California–Québec order [5].
• Build in safeguards: Put quantitative limits on unit flows into the BRICS rulebook now. This answers the integrity objection before any trade begins [6].
• Move gradually towards absolute caps: Mature sectors could shift to caps over time. This would match the Net Zero 2070 goal [7].
• Prefer bilateral deals under Article 6.2: India can pick partners with high standards, and these deals need strong MRV anyway.

Linking intensity-based and cap-based systems risks weaker integrity, higher emissions and only partial acceptance of credits. India's BRICS presidency is a chance to replace repeated summit pledges with a shared rulebook. Tighter targets and credible MRV at home would make Indian credits trusted inside BRICS. That would serve both SDG 13 and the principle of common but differentiated responsibilities.