As the world races to combat climate change, India is poised to take a significant step forward with the launch of its Carbon Credit Trading Scheme (CCTS) in mid-2026. This ambitious initiative, replacing the Perform, Achieve, and Trade (PAT) scheme, shifts the focus from energy efficiency to greenhouse gas (GHG) emissions trading. Targeting major industrial sectors that account for 16% of India’s emissions, the CCTS promises to reshape the country’s climate policy, bolster industrial competitiveness, and align with global sustainability goals. Here’s an in-depth look at what this means for India’s future.
Understanding the Carbon Market and CCTS
A carbon market, as defined by the United Nations Environment Programme (UNEP), is a system where governments and organizations trade GHG emission credits to incentivize reductions. India’s framework features two pillars: a compliance mechanism mandating emission cuts in energy-intensive sectors like power plants, and an offset mechanism encouraging voluntary efforts, such as afforestation projects by IT firms. Backed by the Energy Conservation (Amendment) Act, 2022, the CCTS will issue certificates for every ton of CO₂ equivalent (tCO₂e) reduced or removed. A robust institutional setup, including the National Steering Committee for the Indian Carbon Market (NSCICM), the Bureau of Energy Efficiency (BEE), and the Central Electricity Regulatory Commission (CERC), ensures its smooth operation.
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Why the Carbon Market Matters for India
- Driving Green Innovation and Competitiveness
The CCTS incentivizes industries to adopt clean technologies, reducing costs and boosting competitiveness. Companies like Tata Steel, aiming for net-zero by 2045 through carbon capture, exemplify this shift. With initiatives like the Green Hydrogen Mission, Indian industries can lead in sustainable production, especially in steel, cement, and chemicals. - Navigating Global Trade Regulations
The European Union’s Carbon Border Adjustment Mechanism (CBAM), effective from 2026, will impose tariffs on carbon-intensive imports like iron, steel, and aluminum—sectors where India exported $8.2 billion to the EU in 2022. A strong domestic carbon market prepares Indian exporters for compliance, safeguarding market access and minimizing financial losses. - Enhancing Climate Diplomacy
With a Net Zero target of 2070 and a pledge to cut emissions intensity by 45% by 2030, India’s carbon market strengthens its position in global climate talks. It aligns with international best practices, potentially unlocking funding from mechanisms like the Green Climate Fund and boosting India’s leverage at COP summits. - Economic Opportunities
Carbon trading creates new revenue streams. Companies exceeding emission targets can sell surplus credits, while the government can auction credits to fund green infrastructure. The EU’s Emissions Trading System raised €43.6 billion in 2023, and India’s Renewable Energy Certificates (REC) market saw a 65% trading surge in 2023, signaling investor enthusiasm. - Accelerating Renewable Energy
By making carbon-intensive energy costlier, the CCTS pushes industries toward renewables like solar and wind. India added 9.7 GW of solar capacity in 2023 and aims for 500 GW of non-fossil fuel capacity by 2030, supported by the Green Hydrogen Mission targeting 5 million metric tonnes annually. - Attracting Investment
A transparent carbon market draws foreign investors and green finance. In 2023, the World Bank approved $1.5 billion for India’s low-carbon energy, and the government issued Rs 200 billion in green bonds, signaling a growing appetite for sustainability-linked investments.
Challenges to Overcome
Despite its potential, hurdles remain. Weak emission targets focusing on intensity rather than absolute reductions risk oversupplying credits, as seen in the PAT scheme where prices crashed from Rs 1,200 to Rs 200 in 2022. Lax enforcement and low penalties allow non-compliance, while the exclusion of major polluters like thermal power plants limits impact. Inadequate monitoring risks fraud, and the lack of a secondary market or global integration hampers scalability.
Steps Toward Success
To maximize the CCTS’s impact, India must set ambitious targets with a carbon price floor, expand coverage to power, transport, and agriculture, and integrate with REC trading. A blockchain-based monitoring system, private sector incentives, and a national carbon trading exchange can enhance efficiency. Aligning with global standards like CBAM and raising awareness will further solidify its foundation.
Conclusion
India’s CCTS is more than a climate tool—it’s a catalyst for economic growth, industrial transformation, and global leadership. By addressing challenges and leveraging opportunities, India can pave the way for a sustainable, low-carbon future. Stay tuned as this journey unfolds, promising a greener tomorrow for us all.