India’s Carbon Credit Trading Scheme (CCTS) Targets

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.