The future economic development trajectory for India is likely to result in rapid and accelerated growth in energy demand, with attendant shortages and problems. Due to the predominance of fossil fuels in the generation mix, there are large negative environmental externalities caused by electricity generation. The power sector alone has a 40 percent contribution to the total carbon emissions. In this context, it is imperative to develop and promote alternative energy sources that can lead to sustainability of the energy-environment system. There are opportunities for renewable energy technologies under the new climate change regime as they meet the two basic conditions to be eligible for assistance under UNFCCC mechanisms: they contribute to global sustainability through GHG mitigation; and, they conform to national priorities by leading to the development of local capacities and infrastructure. This increases the importance of electricity generation from renewables. Considerable experience and capabilities exist in the country on renewable electricity technologies. But a number of technoeconomic, market-related, and institutional barriers impede technology development and penetration. Although at present the contribution of renewable electricity is small, the capabilities promise the flexibility for responding to emerging economic, socio-environmental and sustainable development needs. This paper discusses the renewable and carbon market linkages