India's power and industry sectors are significant contributors to greenhouse gas emissions, accounting for 40% of the nation's total. While the power sector has a clear decarbonization pathway through the adoption of renewable energy, the industrial sector faces challenges due to hard-to-abate technologies. This research bridges a critical gap in existing literature by proposing a novel, integrated framework to analyze the potential of a domestic Emissions Trading System (ETS) for facilitating inter-sectoral emissions trading within India. Current integrated assessment models predominantly focus on emissions trading between countries, neglecting the complexities of a single-region, multi-sector approach. To address this, a top-down, mixed-methodology framework was developed. This approach incorporates a meta-analysis of global climate discourse, drawing from Shared Socio-economic Pathways and comprehensive literature reviews. At the national level, medium and short-term energy system optimization models were created using MESSAGEix to analyze the power and industry sectors. At the micro-level, a carbon-footprint-based economic dispatch simulation model was developed for granular analysis of the thermal power sector. This multi-tiered framework addresses three key research questions: the necessity of an ETS for India, the potential impacts on the energy and industrial sectors, and the consequences for short-term unit commitment in the thermal power sector. Preliminary findings suggest that a domestic carbon market could accelerate India's renewable energy transition, thereby strengthening its Nationally Determined Contributions (NDCs) and providing a countermeasure to international carbon tariffs such as the EU's Carbon Border Adjustment Mechanism (CBAM). Furthermore, sectoral emissions trading is shown to create financial incentives for collaboration, which can lower the systemic costs of decarbonization for hard-to-abate industries like cement and steel. The introduction of carbon pricing also has the potential to reorder the merit-based dispatch of power plants, making a transition from coal to gas more economically feasible. This research provides a robust analytical foundation to inform policy decisions regarding the implementation and design of an effective ETS in India.

Acknowledgement: I would like to extend my gratitude to my YSSP-IIASA mentors, Dr. Setu Pelz, Dr. Siddharth Joshi, and Dr. Shonali Pachauri, for helping me with this research. This research was supported by funding from the Prof. Jyoti and Kirit Parikh Fellowship, the Centre for Energy Regulation, and the Energy Analytics Lab at the Department of Management Sciences, Indian Institute of Technology Kanpur.