On its way to becoming the world’s third-largest economy by 2030, India has unveiled a new Carbon Credits Trading Scheme (CCTS) to align economic growth with climate goals amid a global surge in carbon pricing
India is poised at a critical point in its climate strategy, with its ambition to become the world's third-largest economy by 2030. To reconcile economic growth with environmental responsibility, the country must address its carbon emissions, which remain significant despite relatively low per-capita levels. Currently the world’s third-largest emitter of greenhouse gases, India’s per-capita emissions stand at 1.8 tonnes of CO2, below the global average of 4.4 tonnes.
In response to its climate obligations, India has pledged to achieve carbon neutrality by 2070 as part of its Panchamrit commitment. This pledge was reaffirmed at COP 27, where India emphasised its efforts to balance developmental needs with lower carbon emissions through principles of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC).
A significant new initiative in India's climate strategy is the Carbon Credits Trading Scheme (CCTS), established under the unified Indian Carbon Market (ICM). This scheme aims to reduce greenhouse gas emissions by allowing entities to trade carbon credit certificates. Obligated entities will have targets for greenhouse gas emission intensity and will either earn or purchase carbon credit certificates based on their performance. The CCTS builds on existing mechanisms like the Perform, Achieve and Trade (PAT) scheme and the Renewable Energy Certificates (REC) system, offering a new avenue for emissions trading beyond the voluntary market.
Ongoing progress in carbon pricing is evident, with 75 carbon taxes and emissions trading schemes currently operational worldwide. Middle-income countries, including India, Brazil, and Turkey, are increasingly adopting carbon pricing mechanisms, which now cover around 24 percent of global emissions. The introduction of new carbon pricing tools could
expand this coverage to nearly 30 percent.
The CCTS will also enable non-obligated entities to participate in the carbon credit market, allowing them to register projects and obtain tradable carbon credit certificates, each representing one tonne of CO2 equivalent. The compliance segment of the CCTS is expected to commence in the 2025-26 period. India plans to use this platform to attract investment and technology in emerging sectors such as green hydrogen, sustainable aviation fuel, and offshore wind.
To ensure the integrity of the carbon market, the Bureau of Energy Efficiency (BEE) and the National Steering Committee for Indian Carbon Market (NSCICM) will oversee the monitoring, reporting, and verification processes. They have initiated workshops to discuss the accreditation of carbon verification agencies and compliance procedures.
For private enterprises, the CCTS presents both challenges and opportunities. Companies will need to either reduce emissions to meet compliance targets or purchase carbon credits. Additionally, carbon credits offer a potential new revenue stream, aligning Indian businesses with the expanding global carbon trading markets.
The CCTS represents a collaborative effort among various government stakeholders, with the BEE managing the scheme and the Central Electricity Regulatory Commission (CERC) overseeing trading regulations. As the scheme develops, ensuring the quality and credibility of carbon credits will be crucial. Key aspects of quality include credibility, durability, and positive spill-over effects.
India's new carbon market reforms and the global shift towards carbon pricing are pivotal in advancing climate action. Addressing these challenges and maintaining high standards for carbon credits will be essential in fostering a robust market that supports climate mitigation while driving economic growth.
The report, "Carbon Markets as a Tool for Climate Financing: The India Story," jointly published by Invest India, the Carbon Markets Association of India, the National Institute of Public Finance & Policy, and other partners, explores the landscape of global carbon markets, their impact on India, and future directions for India’s carbon market. The report focuses on energy, mobility, and agriculture, offering case studies and outlining necessary interventions by financial institutions.