India and South Korea Sign Carbon Trading Agreement

India and South Korea establish bilateral carbon trading framework

India and South Korea have signed a Memorandum of Cooperation under Article 6.2 of the Paris Agreement. This creates a formal framework for trading verified emission reductions between the two countries. The agreement allows both nations to use internationally transferred carbon credits to meet their climate commitments more cost-effectively.

Article 6.2 enables countries to trade units called Internationally Transferred Mitigation Outcomes, or ITMOs. Each ITMO represents one tonne of carbon dioxide equivalent that has been reduced or removed from the atmosphere. Crucially, external entities must verify these reductions before they can be traded.

The framework goes beyond simple carbon trading. Both countries have agreed to collaborate on renewable energy projects, green hydrogen infrastructure, and low-carbon technology development. They will also work together through multilateral environmental initiatives, with India welcoming South Korea into the International Solar Alliance.

How the Article 6.2 trading mechanism works

The system functions through a straightforward exchange. A country that exceeds its emission reduction targets can sell ITMOs to another country that has not yet met its goals. The purchasing country can then use these credits to close gaps in meeting its Nationally Determined Contributions. Meanwhile, the selling country receives financial incentives for its additional climate action.

However, there are important safeguards built into the system. Once an ITMO is sold, the selling country must adjust its accounting to prevent the same emission reduction from being counted twice. This corresponding adjustment ensures the environmental integrity of the traded credits.

External verification is mandatory for all ITMOs before they enter the trading system. This requirement helps maintain credibility and prevents the trading of emission reductions that have not actually occurred. The verification process creates a paper trail that can be audited by international bodies.

India aims to reach net-zero emissions by 2070, while South Korea targets 2050. The bilateral agreement strengthens their ability to achieve these commitments through international cooperation rather than relying exclusively on domestic measures. This is particularly important given the scale of investment required for decarbonization.

Economic partnership extends across multiple sectors

The carbon trading agreement sits within a much broader economic relationship between the two nations. India and South Korea have signed 16 memorandums of understanding across various sectors. These include semiconductors, electronics, green energy, e-mobility, and advanced manufacturing.

The countries aim to double bilateral trade to 54 billion dollars by 2030. This represents annual growth of nearly 18 percent. The carbon market cooperation provides an additional mechanism to support this trade expansion, particularly in green technology sectors.

Green hydrogen infrastructure features prominently in the cooperation framework. Both countries recognize that hydrogen will play a significant role in decarbonizing heavy industry and transport. Therefore, collaboration on hydrogen technology and supply chains makes commercial sense alongside carbon trading.

Renewable energy projects form another pillar of the partnership. India has substantial solar and wind resources, while South Korea brings advanced manufacturing capabilities for renewable energy equipment. Consequently, the partnership creates opportunities for technology transfer and joint project development.

Implications for UK businesses and supply chains

UK companies operating in or trading with India and South Korea need to understand how this bilateral carbon market might affect their operations. Businesses with manufacturing facilities in either country could potentially access ITMOs to offset emissions that are difficult to eliminate through direct reduction measures.

Supply chain emissions reporting becomes more complex when suppliers participate in international carbon trading. For example, a UK manufacturer sourcing components from South Korea may need to verify whether their supplier has sold ITMOs associated with emission reductions. This matters for accurate Scope 3 emissions accounting.

Public sector suppliers face particular scrutiny. Procurement Policy Note 06/21 requires suppliers bidding for major government contracts to demonstrate credible carbon reduction plans. If suppliers rely on purchased ITMOs rather than actual emission reductions, this could affect their compliance status.

Companies should also consider how bilateral carbon markets might influence pricing and competitiveness. Businesses in countries with access to lower-cost ITMOs may gain cost advantages over those relying solely on domestic carbon reduction measures. This could affect competitive dynamics in sectors like steel, cement, and chemicals.

Furthermore, the growth of compliance-level carbon markets signals a shift away from purely voluntary offsetting. UK businesses should prepare for a future where carbon trading operates within stricter regulatory frameworks and accounting standards. Our net-zero program helps companies navigate these evolving requirements.

Five key facts about the India-South Korea carbon agreement

• The Memorandum of Cooperation establishes a bilateral framework under Article 6.2 of the Paris Agreement for trading verified emission reductions between India and South Korea.
• Each Internationally Transferred Mitigation Outcome represents one tonne of carbon dioxide equivalent and must be verified by external entities before it can be traded.
• Selling countries must make corresponding adjustments to their national accounting to prevent double-counting of the same emission reduction.
• The agreement forms part of a broader economic partnership targeting 54 billion dollars in bilateral trade by 2030, with cooperation across semiconductors, green energy, and advanced manufacturing.
• Both countries have committed to ambitious net-zero targets, with South Korea aiming for 2050 and India targeting 2070.

What this means for carbon market development

This bilateral deal demonstrates that Article 6.2 is moving from theoretical framework to practical implementation. The mechanism was formally operationalized at COP26 in 2021, and countries are now establishing the bilateral agreements needed to make it function.

The India-South Korea agreement shows how carbon markets are evolving beyond voluntary offsetting toward compliance-level mechanisms. These integrate directly with national greenhouse gas inventories and climate commitments. This shift has significant implications for how businesses approach carbon management.

Companies should expect more countries to establish bilateral carbon trading agreements in the coming years. As a result, the international carbon market will become increasingly complex, with multiple bilateral and multilateral frameworks operating simultaneously. Businesses will need robust systems to track and verify carbon credits across different jurisdictions.

The requirement for external verification and corresponding adjustments indicates that carbon market integrity is receiving serious attention. Consequently, businesses relying on carbon credits will face greater scrutiny of their claims. This makes accurate emissions measurement and transparent reporting even more important.

For UK SMEs, the broader trend toward structured carbon markets creates both risks and opportunities. On one hand, businesses may face more stringent requirements to demonstrate genuine emission reductions. On the other hand, companies that invest early in decarbonization could potentially generate tradable credits under future UK bilateral agreements.

The emphasis on green hydrogen and renewable energy cooperation suggests that carbon markets will increasingly link to broader industrial and energy policy. Therefore, businesses should view carbon management as part of their overall energy and resource strategy, not as a standalone compliance issue. Our compliance services help businesses integrate carbon reporting with wider environmental obligations.

Sector-specific considerations for manufacturers and exporters

Manufacturing businesses should pay particular attention to how international carbon markets affect their competitive position. Companies in emissions-intensive sectors like steel, cement, and chemicals may face pressure from competitors who can access lower-cost carbon credits through international trading mechanisms.

Exporters to India and South Korea need to understand how carbon market participation might affect their customers’ purchasing decisions. Indian and South Korean buyers may increasingly favor suppliers who can demonstrate credible emission reductions or provide products with lower carbon footprints. This could influence contract terms and supplier selection criteria.

Electronics and semiconductor manufacturers face specific considerations given the cooperation between India and South Korea in these sectors. The bilateral agreement may accelerate technology transfer and joint ventures in low-carbon manufacturing processes. UK companies in these supply chains should monitor developments closely.

Transport and logistics providers should consider how carbon trading frameworks affect their service offerings. As customers become more sophisticated about Scope 3 emissions, they may request detailed carbon accounting for shipping and freight services. Additionally, the growth of green hydrogen infrastructure could create new opportunities in hydrogen transport and storage.

Carbon accounting and reporting implications

The proliferation of bilateral carbon trading agreements creates new challenges for emissions accounting. Businesses need systems that can track whether emission reductions in their supply chains have been sold as ITMOs to other countries. Without this information, Scope 3 emissions calculations may be inaccurate.

Companies reporting under the Streamlined Energy and Carbon Reporting regulations should verify how their suppliers use carbon credits. If a supplier sells ITMOs generated from emission reductions, those reductions cannot legitimately be claimed in the buyer’s carbon footprint. This requires more detailed supplier engagement and data collection.

The requirement for corresponding adjustments in Article 6.2 trading provides a model for how carbon accounting should prevent double-counting. UK businesses should apply similar principles to their own carbon management, ensuring that offset claims are backed by verified, additional emission reductions that have not been counted elsewhere.

Training on carbon accounting is becoming essential for finance and operations teams. The SBS Academy offers courses on emissions measurement, Scope 3 accounting, and carbon market mechanisms to help businesses build internal capability.

Wider context of international carbon market development

The India-South Korea agreement is not an isolated development. Multiple countries are establishing bilateral frameworks under Article 6.2, creating a patchwork of international carbon trading relationships. Switzerland, Singapore, Ghana, and several other nations have signed similar agreements.

According to the UK government’s approach to international carbon markets, published by the Department for Energy Security and Net Zero, the UK is also exploring bilateral agreements to support its climate targets. Businesses should expect UK participation in international carbon trading to increase over the coming years.

The development of compliance-level carbon markets represents a significant evolution from voluntary offset schemes. Voluntary markets have faced criticism over additionality, permanence, and verification standards. The Article 6.2 framework attempts to address these concerns through mandatory verification, corresponding adjustments, and integration with national climate commitments.

However, questions remain about how different bilateral frameworks will interact and whether a truly global carbon market will emerge. Businesses should prepare for a period of fragmentation and complexity before international carbon markets potentially consolidate around common standards and infrastructure.

Where to find authoritative information and guidance

The UK government publishes guidance on international carbon markets and Article 6 implementation through the Department for Energy Security and Net Zero. This includes policy positions on carbon trading and updates on UK participation in international mechanisms.

The United Nations Framework Convention on Climate Change maintains detailed information about Article 6 mechanisms, including technical guidance on ITMOs, corresponding adjustments, and reporting requirements.

For businesses reporting emissions under UK regulations, the government’s greenhouse gas conversion factors provide the official methodology for calculating carbon footprints. These are updated annually and should be used for all compliance reporting.

The International Emissions Trading Association provides analysis of carbon market developments, though businesses should verify information against official government sources. For specific questions about how international carbon markets affect your business operations, professional advice tailored to your circumstances is essential.