India Launches Carbon Credit Trading Scheme, Targets Net-Zero Future

India Launches Carbon Credit Trading Scheme, Targets Net-Zero Future

India’s recent operationalization of the Indian Carbon Market (ICM) under the Carbon Credit Trading Scheme (CCTS), approved and detailed as of April 2025, marks a significant advancement in its climate strategy, aligning with the Paris Agreement and its Nationally Determined Contributions (NDCs). This framework, administered by the Bureau of Energy Efficiency (BEE) under the Ministry of Power, integrates both compliance and voluntary mechanisms, aiming to reduce greenhouse gas (GHG) emissions and accelerate the low-carbon transition. Below, we explore its structure, market implications, and international compatibility, drawing from official documents and analyses.

Overview of ICM and CCTS

The ICM, as outlined on the BEE’s carbon market program page (Carbon Market | BUREAU OF ENERGY EFFICIENCY), is designed to price additional climate actions, complementing entities undertaking GHG reduction projects. The CCTS, notified under the Energy Conservation (Amendment) Act, 2022, includes two key components:

• Compliance Mechanism: Detailed in the “Detailed Procedure for Compliance Mechanism under CCTS” document, this mandates obligated entities—primarily energy-intensive industries such as aluminium, chlor-alkali, cement, fertiliser, iron & steel, pulp & paper, petrochemicals, petroleum refinery, and textile—to meet GHG emission intensity targets. These targets, set in tonnes of CO2 equivalent (tCO2e) per unit of product, cover a trajectory period (e.g., three years) and are reviewed periodically. Entities exceeding targets earn CCCs, tradable on a regulated platform, while those failing must purchase or surrender CCCs, overseen by the Central Electricity Regulatory Commission (CERC) as the regulator and GCI as the registry operator.

• Offset Mechanism: The “Detailed Procedure for Offset Mechanism_CCTS” document outlines a voluntary, project-based baseline and credit system for non-obligated entities. It enables registration of projects for GHG reduction, removal, or avoidance against baselines, issuing CCCs. Sectors covered include energy, industries, agriculture, waste handling, forestry, and transport in Phase I, with plans to expand to fugitive emissions, construction, solvent use, and carbon capture in Phase II. Eight methodologies have been released, detailed in a table below, providing guidelines for project developers.

S. No	Sector	Methodology Number	Methodology Name	Link to Download
1	Energy	BM EN01.001	Grid-connected electricity generation from renewable sources	[BM EN01.001](https://beeindia.gov.in/sites/default/files/BM EN01.001.pdf)
2	Energy	BM EN01.002	Hydrogen production from electrolysis of water	[BM EN01.002](https://beeindia.gov.in/sites/default/files/BM EN01.002.pdf)
3	Industries	BM IN02.001	Energy efficiency and fuel switching measures for industrial facilities	[BM IN02.001](https://beeindia.gov.in/sites/default/files/BM IN02.001.pdf)
4	Industries	BM IN02.002	Hydrogen production using methane extracted from biogas	[BM IN02.002](https://beeindia.gov.in/sites/default/files/BM IN02.002.pdf)
5	Waste Handling and Disposal	BM WA03.001	Landfill methane recovery	[BM WA03.001](https://beeindia.gov.in/sites/default/files/BM WA03.001.pdf)
6	Waste Handling and Disposal	BM WA03.002	Flaring or use of landfill gas	[BM WA03.002](https://beeindia.gov.in/sites/default/files/BM WA03.002.pdf)
7	Agriculture	BM AG04.001	Methane recovery from livestock and manure management at households and small farms	[BM AG04.001](https://beeindia.gov.in/sites/default/files/BM AG04.001.pdf)
8	Forestry	BM FR05.001	Afforestation and reforestation of degraded mangrove habitats	[BM FR05.001](https://beeindia.gov.in/sites/default/files/BM FR05.001.pdf)

This dual structure builds on India’s past experience with compliance markets like PAT, saving over 106 million tonnes of CO2 emissions since 2015 to June 2024, and voluntary offset projects under the Clean Development Mechanism (CDM), where India registered the second-largest number globally.

Compliance vs. Voluntary Market Classification

CCTS’s compliance mechanism is clearly part of the compliance market, targeting obligated entities with mandatory GHG targets, akin to emissions trading systems (ETS) in countries like China and the EU. The offset mechanism, however, aligns with the voluntary market, enabling non-obligated entities to undertake projects voluntarily, similar to international standards like Gold Standard and Verra. This integration is unusual, as most nations separate compliance and voluntary markets, but it reflects India’s strategy to maximize climate action across sectors, potentially creating a hybrid model.

Impact on Existing Voluntary Carbon Market

The existing voluntary carbon market, dominated by registries like Verra and Gold Standard, has seen significant Indian participation, with over 1,400 projects registered or under consideration as of June 2023, accounting for one-fifth of global credits issued. CCTS’s offset mechanism could impact this market in several ways:

• Competition: By offering domestic CCCs, CCTS may reduce demand for foreign credits, especially if domestic credits are cheaper or more accessible due to lower transaction costs and familiarity with local regulations. This could challenge international registries, particularly in sectors like renewables and forestry, where methodologies overlap.

• Market Expansion: Conversely, CCTS could boost overall market activity by incentivizing more projects, increasing supply and potentially attracting new buyers, both domestically and internationally. This could enhance India’s position as a carbon credit exporter, as hinted by the power minister’s August 2024 statement on exporting credits to green hydrogen buyers.

• Potential Fragmentation: The introduction of a domestic registry (GCI) might fragment the market, raising concerns about credit integrity and interoperability with global standards. This could lead to controversy, with some stakeholders advocating for alignment and others preferring a self-contained system to prioritize national interests.

Differences from Existing Carbon Standards

CCTS differs from existing standards like Gold Standard and Verra in several key aspects:

• Scope: CCTS integrates compliance and voluntary elements, while Gold Standard and Verra are focus more on voluntary, focusing on offset projects. This hybrid approach is unique, offering a domestic compliance market alongside voluntary incentives, potentially simplifying access for local entities.

• Methodologies: CCTS’s eight methodologies are tailored to India’s NDC goals, covering sectors like energy efficiency, hydrogen production, and mangrove afforestation, with a phased approach (Phase I and II). Gold Standard emphasizes alignment with Sustainable Development Goals (SDGs), requiring additional social and economic benefits, while Verra prioritizes transparency and rigorous accounting, particularly for REDD+ projects.

• Governance: CCTS is governed by national bodies like BEE, NSCICM, and CERC, with GCI as the registry operator, ensuring domestic control. In contrast, Gold Standard and Verra are non-profit, international organizations, with independent verification by accredited agencies, potentially offering broader global acceptance.

• Market Focus: CCTS aims to meet national climate targets, potentially prioritizing local economic benefits, while Gold Standard and Verra cater to global buyers, often linked to corporate net-zero goals. This domestic focus may offer simpler access but could face scrutiny on international alignment, especially regarding additionality and permanence.

This comparison highlights CCTS’s potential to streamline climate action domestically while navigating challenges in aligning with global standards, a critical consideration as India scales its carbon market.

Conclusion

India’s ICM under CCTS represents a bold step toward integrating compliance and voluntary markets, with significant implications for both domestic and international carbon markets. While it offers opportunities for increased climate finance and market activity, its impact on the existing voluntary market and compatibility with foreign registries like Gold Standard and Verra will depend on future developments, particularly around interoperability and credit integrity. As of April 2025, this framework positions India as a key player in global climate action, with ongoing debates likely to shape its trajectory.

#IndiaCarbonMarket, #CCTS2025, #NetZeroIndia, #ClimateActionIndia, #GHGReduction

Key Citations

• Carbon Market | BUREAU OF ENERGY EFFICIENCY, Government of India, Ministry of Power Carbon Market | BUREAU OF ENERGY EFFICIENCY

• Detailed Procedure for Compliance Mechanism under Carbon Credit Trading Scheme [Detailed Procedure for Compliance Mechanism under CCTS](https://beeindia.gov.in/sites/default/files/Detailed Procedure for Compliance Mechanism.pdf)

• Detailed Procedure for Offset Mechanism under Carbon Credit Trading Scheme [Detailed Procedure for Offset Mechanism_CCTS](https://beeindia.gov.in/sites/default/files/Detailed Procedure for Offset Mechanism_CCTS.pdf)

• BM EN01.001 Grid-connected electricity generation from renewable sources [BM EN01.001](https://beeindia.gov.in/sites/default/files/BM EN01.001.pdf)

• BM EN01.002 Hydrogen production from electrolysis of water [BM EN01.002](https://beeindia.gov.in/sites/default/files/BM EN01.002.pdf)

• BM IN02.001 Energy efficiency and fuel switching measures for industrial facilities [BM IN02.001](https://beeindia.gov.in/sites/default/files/BM IN02.001.pdf)

• BM IN02.002 Hydrogen production using methane extracted from biogas [BM IN02.002](https://beeindia.gov.in/sites/default/files/BM IN02.002.pdf)

• BM WA03.001 Landfill methane recovery [BM WA03.001](https://beeindia.gov.in/sites/default/files/BM WA03.001.pdf)

• BM WA03.002 Flaring or use of landfill gas [BM WA03.002](https://beeindia.gov.in/sites/default/files/BM WA03.002.pdf)

• BM AG04.001 Methane recovery from livestock and manure management at households and small farms [BM AG04.001](https://beeindia.gov.in/sites/default/files/BM AG04.001.pdf)

• BM FR05.001 Afforestation and reforestation of degraded mangrove habitats [BM FR05.001](https://beeindia.gov.in/sites/default/files/BM FR05.001.pdf)