Green Economics in Action: Exploring the Nexus Between Industrial Growth, Market Forces, and Carbon Credit Movements in Emerging Economies – With Reference to India

Abstract

This study examines the impact of key economic growth indicators on the carbon credit market in India, highlighting how selected macroeconomic variables shape its dynamics in an emerging economy. Using secondary data covering 11 years from the Reserve Bank of India (RBI) and BSE India, the research applies rigorous econometric methods, including the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) Unit Root Tests, the Vector Error Correction Model (VECM), and Ordinary Least Squares (OLS) regression, to explore both short- and long-run relationships among variables. The analysis considers crude oil prices, automobile sales (AMS), the Housing Price Index (HPI), GDP, the Index of Industrial Production (IIP), and the Green Exchange Index—an indicator of sustainable finance performance and investor confidence in carbon markets. These variables capture economic activity, market sentiment, and energy dependence, all of which influence carbon credit pricing and demand. Empirical results indicate that crude oil prices and AMS negatively affect carbon credits, whereas HPI, GDP, and IIP positively impact them. The Wald test indicates no long-run relationship between carbon credits and crude oil, AMS, or HPI. However, GDP, IIP, and the Green Exchange Index significantly boost carbon credits in the short run. A robustness check using 2024 data confirms the consistency and structural stability of these associations over time. The study concludes that macroeconomic and industrial indicators are decisive in shaping carbon credit movements. Strengthening industrial productivity, promoting sustainable finance, and aligning macroeconomic management with green policy objectives can enhance the efficiency of carbon markets. These findings provide valuable insights for policymakers, investors, and environmental economists seeking to harmonise economic growth with emission reduction goals. The Indian experience also offers a strategic reference for other emerging economies pursuing sustainable carbon trading frameworks.