India is preparing for a major change in its environmental policies with the launch of the Carbon Credit Trading Scheme (CCTS) in mid-2026. This new system will replace the current Perform, Achieve, and Trade (PAT) scheme and focus on reducing greenhouse gas (GHG) emissions. Initially, it will target major industries responsible for 16% of India’s total emissions. The goal is to help India meet its ambitious climate targets, including achieving Net Zero emissions by 2070.
Understanding the Carbon Market
The CCTS will operate within India’s carbon market, which has two main parts:
- Compliance Mechanism: This makes it mandatory for energy and industrial sectors to reduce emissions. For example, power plants must meet renewable energy obligations.
- Offset Mechanism: This encourages companies not required to reduce emissions to take voluntary actions, like investing in tree-planting projects.
The legal basis for this is the Energy Conservation (Amendment) Act, 2022, which allows the government to create the CCTS and issue carbon credit certificates. Each certificate represents one ton of CO₂ equivalent (tCO₂e) reduced or removed from the atmosphere.
Key Players in the System
Several organizations will oversee the carbon market:
- The National Steering Committee for the Indian Carbon Market (NSCICM) will manage the overall system.
- The Bureau of Energy Efficiency (BEE) will administer the market.
- The Grid Controller of India (GCI) will manage the registry of carbon credits.
- The Central Electricity Regulatory Commission (CERC) will regulate trading activities.
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Benefits for India
A well-functioning carbon market can bring many advantages:
- It encourages industries to use cleaner technologies and become more energy-efficient, making them more competitive.
- It helps Indian exporters comply with global carbon regulations, like the EU’s Carbon Border Adjustment Mechanism (CBAM).
- It strengthens India’s position in international climate negotiations and attracts investment.
- It creates new revenue through carbon credit trading, which can fund green projects.
- It promotes the use of renewable energy and helps reduce carbon emissions.
- It attracts foreign investment into green projects.
Challenges to Overcome
However, there are challenges:
- Current emission reduction targets may not be strict enough.
- Enforcement of compliance can be weak.
- The system doesn’t yet cover all major polluting sectors.
- There’s a lack of reliable systems to measure and verify carbon emissions.
- A strong secondary market for carbon credits is missing.
- The Indian market is not fully integrated with global carbon markets.
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Steps to Improve the System
To make the carbon market effective, India can:
- Set more ambitious emission reduction targets.
- Expand the system to include more sectors, like power generation and transportation.
- Integrate carbon credit trading with renewable energy certificate (REC) trading.
- Improve the monitoring and verification of carbon emissions.
- Provide incentives to encourage private sector participation.
- Create a national carbon trading exchange.
- Align India’s carbon market with global trade regulations.
- Increase awareness and provide training on carbon trading.
Looking Ahead
By addressing these challenges and implementing strategic measures, India can establish a robust carbon market. This will help reduce emissions, boost industrial competitiveness, and position India as a global leader in climate action, while also promoting sustainable economic growth.