The Indian government recently announced greenhouse gas emissions intensity of production targets for eight of the nine heavy industrial sectors covered in Carbon Credit Trading Scheme’s (CCTS) compliance mechanism.

• Sectors Covered: 8 heavy industrial sectors – Aluminium, Cement, Paper and Pulp, Chlor-Alkali, Iron and Steel, Textile, Petrochemicals, and Petro Refineries.
• CCTS Targets: Current targets imply 1.68% annual emissions intensity of value added (EIVA) reduction (2023-24 to 2026-27) across 8 sectors.

India’s Carbon Credit Trading Scheme (CCTS)

• It is a mechanism designed to reduce greenhouse gas (GHG) emissions through carbon pricing. (Launched in 2023)
• Aim: To incentivize and support entities in their efforts to decarbonize the Indian economy.
• Legal Basis: Energy Conservation (Amendment) Act, 2022, provides statutory mandate for CCTS.
  • Complies with India’s Nationally Determined Contributions (NDCs) under the Paris Agreement (45% reduction in emission intensity by 2030 from 2005 levels) and 2070 net-zero goal.
• Mechanism for Carbon Pricing:
  • Compliance Market: Mandatory participation for regulated entities (primarily industrial sectors) with emissions intensity caps (carbon dioxide emissions per unit of production).
  • Voluntary Market: Offset mechanism for non-regulated sectors (e.g., agriculture, afforestation) to generate carbon credits.
• Launch Timeline: Compliance market set to begin in 2025-26, as per Bureau of Energy Efficiency (BEE) notification (December 2023).
• Credit System: 1 carbon credit = 1,000 kg of CO2 emissions saved or offset. 
  • Credits can be traded based on market-driven prices.
• Replaces PAT Scheme: Shifts focus from energy efficiency (ESCerts) to GHG emission intensity reduction (Carbon Credit Certificates, CCCs).
  • 1 ESCert = 1 tonne of oil equivalent saved.
• Institutional Framework
  • National Steering Committee for Indian Carbon Market (NSCICM):
    • Chaired by Secretary, Ministry of Power; co-chaired by Secretary, MoEFCC.
    • Recommends sectoral targets, rules, and monitors market functioning.
  • Bureau of Energy Efficiency (BEE): Administers CCTS; sets emission trajectories, issues CCCs.

• • Grid Controller of India (GCI): Manages the carbon credit registry.
  • Central Electricity Regulatory Commission (CERC): Regulates CCC trading on power exchanges.
• Target Setting & Assessment
  • Sectoral Trajectories: Aligned with India’s NDCs, considering technology, costs, and decarbonization potential.
  • Baseline Year: 2023-24 for calculating emission intensity.
  • Target Ambition:
    • Modest initial targets (2–3% reduction in 2025-26, rising to 3.3–7.5% in 2026-27).
    • Variation by sector: Cement (3.4% over 2 years), Aluminium (5.85%), Pulp & Paper (7.15%), Chlor-Alkali (7.54%).

Advantages of India’s Carbon Credit Trading Scheme (CCTS)

• Economy-Wide Emission Reduction at Lower Cost: CCTS allows entities to trade carbon credits, enabling emission reduction at the lowest marginal cost, instead of each firm making expensive internal changes.
  • Under PAT Cycle I, even when some sectors like paper and chlor-alkali saw increased energy intensity, aggregate energy intensity across sectors decreased due to efficient trading of energy saving certificates.
• Enables Flexibility and Innovation in Compliance: Entities can either reduce emissions or purchase carbon credits, allowing flexibility to choose the most cost-effective option, encouraging innovation.
  • Entities like Obligated Entity A, which reduces emissions more than required, can earn Carbon Credit Certificates (CCC) and sell them; others like Entity B can buy CCCs instead of incurring high in-house abatement costs.
• Shifts Focus from Energy to GHG Intensity: CCTS represents a major shift from PAT’s focus on energy efficiency to direct control over GHG emission intensity — a more climate-focused metric.
  • PAT was about energy saved per output; CCTS monitors GHG emissions per unit of output, thus aligning more closely with India’s Net Zero goals.
• Drives Industry Participation in Climate Action: The scheme creates regulatory pressure and incentives for large energy-intensive sectors to participate in national climate mitigation goals.
  • Initial sectors under CCTS (e.g., iron & steel, cement, aluminium, etc.) account for 16% of India’s total emissions, and future expansion is likely to include more sectors like power (40% share).

• Builds on Familiar and Proven Frameworks: CCTS is built on existing familiarity with schemes like PAT and CDM (Clean Development Mechanism), easing its adoption and operationalisation.
  • Indian industries already have experience with PAT (saved over 106 million tonnes CO₂) and CDM (India was second-largest CDM project host globally). 
• Ensures Institutional and Regulatory Robustness: The scheme is backed by a detailed institutional mechanism involving BEE, NSCICM, Grid Controller, and CERC, ensuring smooth administration and trading.
  • BEE sets targets, CERC regulates exchanges, and Grid Controller manages CCC registry. This ensures transparent market oversight and avoids fraud.
• Supports India’s NDC and Net Zero Targets: CCTS is aligned with India’s updated NDC target to reduce emissions intensity of GDP by 45% by 2030 from 2005 levels and long-term net-zero ambition by 2070.
  • Modelling shows India’s energy sector CO₂ intensity needs to fall 3.44% annually (2025–30), while CCTS aims to drive down industrial emissions by ~1.68% annually—a step toward meeting NDC goals.
• Revenue Generation for Green Performers: Companies exceeding targets earn Carbon Credit Certificates (CCCs), tradable on power exchanges.
  • CCTS expands this to GHG reductions, creating a larger market (CCTS Draft Rules, 2025).

Criticism and Challenges of India’s Carbon Credit Trading Scheme (CCTS)

• Lack of Ambition in Sectoral Targets: The current greenhouse gas emission intensity (GEI) reduction targets under CCTS are modest and may not drive significant decarbonization.
  • The average annual reduction projected under current CCTS targets is 1.68% (2023–27), while a recent modelling of 2030 NDC-aligned emissions reduction scenario for India shows that an NDC-aligned path would require 2.53% reduction in manufacturing and 3.44% in energy sector annually.
• Focus on Entity-Level Targets May Dilute Economy-Wide Impact: Overemphasis on entity or sector-level targets may not lead to real reductions in emissions across the whole economy.
  • Entity/sector targets only determine financial transfers between firms; real impact must be assessed at the aggregate economy level.
• Power Sector (Largest Emitting Sector) Not Yet Included: India’s power sector contributes ~40% of total GHG emissions, yet it remains outside the CCTS compliance mechanism for now.
  • Experts recommend its inclusion once issues of price impact and distribution company revenue are resolved.
• Potential for Greenwashing and Non-Additional Projects: In the voluntary offset market, there’s a risk that projects may claim credits for emissions they would have reduced anyway, violating the principle of additionality.
  • A study of carbon farming projects in Haryana and MP showed that some practices already existed before the project, undermining additionality; 99% of farmers hadn’t received payments.
• Verification and Monitoring Gaps: Ensuring credible Monitoring, Reporting, and Verification (MRV) across sectors and projects is challenging and resource-intensive.
  • The ACVA (Accredited Carbon Verification Agencies) are yet to be fully operationalized. 
• Equity and Inclusivity Concerns in Offset Mechanism: Marginalised communities and smallholders may be excluded from benefits of the offset mechanism, worsening inequality.
  • In Verra-listed agriculture projects (non-governmental entity), only 13% of carbon farming land was under SC/ST farmers, and women comprised just 4% of participants. 
• Risk of High Penalty Burdens on Non-Compliant Entities: According to the 2025 draft notification, Environmental Compensation = 2x the average trading price of carbon credits during that year’s trading cycle.
  • It may hit financially weaker firms hard.

Complementary Initiatives Related to Carbon Credits

• Nationally Determined Contributions (NDCs): In 2023, India updated its NDCs to include the creation of a domestic carbon market as part of its climate action plan under the Paris Agreement.
  • Promote ‘LIFE’ (Lifestyle for Environment).
  • Reduce Emissions Intensity by 45% by 2030.
  • Achieve 50% Non-Fossil Energy by 2030.
  • Expand Carbon Sink by 2.5-3 Billion Tonnes.
• Perform, Achieve and Trade (PAT) Scheme: Launched in 2012 under the National Mission on Enhanced Energy Efficiency (NMEEE), part of India’s National Action Plan on Climate Change (NAPCC).
  • Administered by: Bureau of Energy Efficiency (BEE), Ministry of Power.
  • Objective: Improve energy efficiency in energy-intensive industries through market-based mechanisms.
  • Key Features of PAT
    • Target-Based Approach: Sets Specific Energy Consumption (SEC) reduction targets for designated industries.
    • Market Mechanism: Industries exceeding targets earn Energy Saving Certificates (ESCerts), which can be traded.
    • Compliance Cycles: Implemented in multiple cycles (PAT I to PAT VII as of 2024).
• Renewable Energy Certificates (REC): RECs are market instruments that certify electricity generated from renewable sources. 
  • One REC represents one megawatt hour of green energy fed into the grid.
  • Issued by the Central Agency, which is appointed by the Central Electricity Regulatory Commission (CERC).
• Mission LiFE: A global movement launched by India to promote sustainable living through mindful, eco-friendly daily habits, encouraging individuals to become “Pro-Planet People.”
  • It nudges behavioural change (like saving energy, reducing plastic, and composting), influences markets, and drives policy reforms to support environmental sustainability.
  • Goal: To mobilize 1 billion people globally to take individual and collective action for protecting and conserving the environment by 2028.
• Green Credit Programme (GCP): Notified in 2023 under the Environment Protection Act, 1986, 
  • It establishes a voluntary, market-based mechanism to incentivize tree plantation on degraded forest lands, issuing Green Credits to participants, all managed via a digital portal and registry.
  • Objectives: Expand India’s forest/tree cover, build a comprehensive inventory of degraded land, and reward voluntary “pro‑planet” actions via Green Credits.

Way Forward for Strengthening India’s Carbon Credit Trading Scheme (CCTS)

• Set More Ambitious and Sector-Aligned Targets: Revise GEI targets upward to align with India’s 2030 NDC goals and net-zero pathway.
  • Current targets (1.68% annual reduction) fall short of the required 2.53%–3.44% annual decarbonisation rate in key sectors like manufacturing and energy.
• Include the Power Sector in Compliance Mechanism: Formulate a roadmap to bring the power sector (40% of India’s GHG emissions) under the CCTS.
  • Excluding the power sector severely limits the scheme’s impact; expert consensus suggests its inclusion will maximize emission reductions.
• Strengthen Monitoring, Reporting and Verification (MRV): Fully operationalise Accredited Carbon Verification Agencies (ACVAs) and standardise data protocols.
  • Robust MRV is essential to ensure credibility of emission reductions and to avoid fraudulent or unverifiable claims.
• Ensure Equity and Social Inclusion in Offset Projects: Design offset projects to prioritise marginalised groups, women, and smallholders through better outreach and higher price incentives.
• Develop Sector-Specific Methodologies and Baselines: Create customised, transparent baselines and methodologies for each sector/subsector.
  • This ensures accurate target setting and comparability across entities, and avoids misreporting or over-crediting.
• Create Floor and Forbearance Price Bands for Carbon Credits: Establish a minimum (floor) and maximum (forbearance) price for Carbon Credit Certificates (CCC) to ensure market stability.
  • Price volatility can discourage participation and lead to speculative trading or under-pricing of emission reductions.
• Promote Awareness and Capacity Building Among Stakeholders: Organise training programs for industries, farmers, verification bodies, and regulators.
  • India’s diverse stakeholders need technical support to effectively participate in the carbon market; this also enhances voluntary market quality.

Conclusion

India’s Carbon Credit Trading Scheme is a vital step toward achieving its NDC and net-zero commitments by leveraging market-based mechanisms for cost-effective emission reductions. However, its true impact will depend on setting ambitious targets, ensuring inclusion, and strengthening verification frameworks. A dynamic, inclusive, and transparent carbon market can make India a global leader in climate action.

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