India and Japan Sign Joint Credit Mechanism (JCM) Agreement under Paris Climate Framework

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India and Japan have formalized a Joint Credit Mechanism (JCM) agreement under Article 6.2 of the Paris Agreement, marking a significant step toward strengthening climate cooperation, advancing carbon markets, and accelerating green investments. The agreement, signed at a time of global trade tensions and supply chain disruptions, positions India to secure sustainable growth while diversifying its strategic partnerships.

Background And Strategic Significance

The pact was signed between the Ministry of Environment, Forest and Climate Change (India) and the Government of Japan. It forms part of a larger bilateral framework valued at nearly ¥10 trillion (approx. Rupees 6 trillion), which also includes collaboration in:

• Artificial Intelligence (AI)

• Defence and security technologies

• Semiconductor manufacturing

• Access to critical minerals

This cooperation becomes even more critical in light of recent geopolitical and economic developments:

• The United States imposed 50% tariffs on several Indian exports, raising concerns about India’s trade competitiveness.

• The U.S. also formally withdrew from the Paris Climate Agreement, creating uncertainty in global climate finance negotiations.

• India, seeking to become a hub for manufacturing and clean technologies, now gains a reliable partner in Japan, which has long experience in energy efficiency and decarbonisation technologies.

Rare Earth Supply Chain Challenges

Rare earth elements are essential for semiconductors, renewable energy technologies, and advanced defence applications.

• In April 2025, China imposed a ban on exports of key rare earth elements such as samarium, gadolinium, and terbium, disrupting global supply chains.

• Although China later relaxed restrictions for India, the crisis revealed the dangers of overdependence on a single source.

• India is now incentivising domestic exploration, mining, and processing of rare earths, but challenges remain due to high costs, environmental risks, and limited technical expertise.

The India–Japan cooperation under JCM is expected to indirectly support rare earth security by fostering joint innovation, sustainable processing methods, and diversified supply chains.

Carbon Trading And Climate Finance

The Joint Credit Mechanism (JCM) enables bilateral trade of carbon credits and aligns with Article 6.2 of the Paris Agreement. Its objectives include:

• Reduction of greenhouse gases using advanced technologies and market-based mechanisms.

• Transfer of low-carbon and renewable energy technologies from Japan to India.

• Capacity building and financing support to meet India’s climate commitments.

This partnership comes at a time when global climate finance discussions remain stalled, with developed and developing nations divided over funding responsibilities. The JCM creates an alternative, bilateral pathway to ensure continued progress on climate targets.

Role Of COP30 In Belem, Brazil

The timing of the agreement is crucial, as it precedes the COP30 Climate Summit (2025) in Brazil, where global negotiators will revisit rules for international carbon markets.

• So far, only 23 countries have submitted updated Nationally Determined Contributions (NDCs) under the Paris Agreement.

• The India-Japan JCM model demonstrates how bilateral agreements can complement multilateral processes.

• Experts highlight that transparent and credible rules for carbon trading must be finalised to avoid duplication and ensure environmental integrity.

India’s Domestic Carbon Market

India has already taken steps to build its own emissions trading system:

• In 2023, the government launched the Carbon Credit Trading Scheme (CCTS).

• A National Designated Authority (NDA) was set up to monitor and approve carbon transactions.

• With Japanese investments and technology under the JCM, India can accelerate deployment of clean energy, green hydrogen, and carbon capture projects, helping achieve its Net Zero target by 2070.

Broader Implications And Future Prospects

• The JCM strengthens India’s energy transition strategy while reducing reliance on Western climate financing.

• It boosts India’s standing as a regional leader in sustainable innovation and green technology.

• The initiative could serve as a model for other developing countries, particularly those struggling to access climate finance through multilateral frameworks.

Key Takeaways For Exams

• Article 6.2 of the Paris Agreement enables countries to meet their NDCs through cooperative approaches, including carbon credit trading.

• It allows for technology transfer, capacity building, and financial flows from developed to developing countries.

• Under this mechanism, nations can generate and trade Internationally Transferred Mitigation Outcomes (ITMOs).

• The India-Japan JCM represents a pioneering bilateral model to support decarbonisation, sustainable trade, and strategic economic resilience.

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