Financializing Climate Compliance: The Strategic Role of Derivatives in Carbon Portfolio Management Within the Indian Economy

The Indian economy is currently in an escalating growth phase aligned with pioneering climate commitments, specifically the goal of achieving Net Zero emissions by 2070. This transition necessitates the development of trailblazing financial tools to manage the cost volatility linked to decarbonization. This article explores the emergent role of carbon derivatives within the context of India’s market mechanisms, such as the Perform, Achieve, and Trade (PAT) scheme and the planned Carbon Credit Trading Scheme (CCTS), as critical instruments for risk management. It examines the specific market, regulatory, and credit risks encountered by Indian industries and proposes a robust framework utilizing futures, options, and centralized clearing. These instruments are presented as essential for corroborating predictable compliance costs, magnifying market liquidity, and protecting competitiveness during the metamorphosis toward a low-carbon economy. Ultimately, the paper argues that transforming carbon management into a strategic financial function, supported by Value-at-Risk analysis, is vital for decoupling climate compliance from economic expansion.

Carbon Derivatives, Risk Management, Indian Economy

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