India-Japan Joint Credit Mechanism for Climate Action

India and Japan have signed a Joint Credit Mechanism (JCM) agreement under Article 6.2 of the Paris Agreement. The move aims to boost carbon trading, attract green investment, and foster sustainable innovation. Signed amid US tariffs on Indian goods and China’s rare earth restrictions, the pact gives India a strategic alternative to strengthen its manufacturing and clean energy future.

Background and Strategic Importance

The JCM was signed between India’s Ministry of Environment, Forest and Climate Change and the Government of Japan. It is part of long-term bilateral agreements worth ¥10 trillion (approx. ₹6 trillion), spanning,

• Artificial intelligence
• Defence
• Semiconductors
• Critical minerals

At a time when the US has imposed 50% tariffs on Indian exports and exited the Paris Agreement, this partnership supports India’s ambition to become a manufacturing hub and leader in sustainable technologies.

Rare Earth Supply Chain Challenges

• China’s April 2025 ban on exports of key rare earths like samarium, gadolinium, and terbium disrupted global supply chains.
• Restrictions were later eased for India, but dependence on China was exposed.
• India is now incentivising domestic mining and processing of rare earths.
• However, developing a stable supply chain is challenging due to technical and environmental barriers.

Carbon Trading and Climate Finance

The JCM allows bilateral carbon credit trading between India and Japan, promoting,

• Greenhouse gas reduction through market mechanisms.
• Technology transfer for decarbonisation.
• Capacity building to meet climate targets.
• The initiative is crucial since global climate finance negotiations remain deadlocked, especially with the US outside the Paris framework.

Role of COP30

• The JCM gains significance ahead of COP30 in Belem, Brazil, where key discussions will focus on rules for global carbon markets.
• So far, only 23 countries have submitted updated climate pledges (NDCs).
• The India-Japan model shows how bilateral cooperation can complement global climate negotiations.
• It also highlights the urgency of transparent rules for carbon trading to ensure credibility.

India’s Domestic Carbon Market

• India launched its Carbon Credit Trading Scheme (2023) and set up a national designated authority to oversee emissions trading.
• Japanese investments under JCM will help deploy clean energy technologies.
• This supports India’s pledge to achieve Net Zero by 2070.
• Experts believe the JCM could serve as a model for other nations seeking bilateral climate partnerships

Important Takaways for Exam

• Article 6.2 of the Paris Agreement allows countries to meet their NDCs through flexible, tailored agreements.
• It promotes technology exchange and capacity building between partner countries.
• Article 6.2 facilitates financial resource flows from developed to developing countries.
• It enables developing countries to generate and trade Internationally Transferred Mitigation Outcomes (ITMOs).