Carbon Markets in India 101
- Sankalp Suman
- Oct 10
- 4 min read
India is stepping up its climate game with the launch of the Indian Carbon Market (ICM) through the Carbon Credit Trading Scheme (CCTS). Whether you're in industry, policy, or just passionate about sustainability, understanding carbon trading is key to navigating India’s low-carbon future. Let’s break down the jargon, explore participation opportunities, and see how this benefits India on a macro level.
What is the Indian Carbon Market (ICM)?
The ICM, powered by the CCTS, operates on a cap-and-trade system. The government sets emission reduction targets for specific industries based on a baseline year. Here’s how it works:
Example: If a company’s target is to cut emissions from 100 tonnes of CO2 to 90 tonnes, and Company A reduces to 80 tonnes, it earns 10 carbon credits. If Company B only reaches 95 tonnes, it must buy 5 credits from Company A to comply.
Big Picture: This incentivizes innovation, reduces greenhouse gases, and aligns with India’s Nationally Determined Contributions (NDCs) under the Paris Agreement. It also drives economic growth through green jobs and global investments.
2025 Update: The CCTS is now in its first compliance cycle, overseen by the Bureau of Energy Efficiency (BEE). Sectors like refineries face 4.2-5.5% emission cuts for 2025-26, with tougher targets ahead.
How Does CCTS Compare to PAT?
If you’re familiar with the Perform, Achieve, Trade (PAT) scheme, CCTS feels like its greener cousin. PAT targeted energy consumption (in Mega Watt Hours), while CCTS focuses on carbon emissions (tCO2e), aligning with global standards. Both use cap-and-trade, but CCTS emphasizes stricter environmental accountability.
Which Industries Are Involved?
The CCTS covers nine high-emission sectors, including:
Oil & Gas
Cement
Steel
Aluminum
Chemicals
Fertilizers
Pulp and Paper
Textiles
Others as notified
These industries must meet mandatory targets, making compliance critical for large emitters.
The Voluntary Offset Market: Beyond Cap-and-Trade
Unlike PAT, CCTS includes a voluntary offset market, allowing non-obligated entities to generate credits through activities like:
Electric buses
Renewable energy (solar, biomass)
Agroforestry
Compressed biogas (CBG)
Key Note: This market is voluntary—credits are generated but not guaranteed to sell. Companies use these to offset emissions beyond mandatory targets, boosting their green credentials. Globally, markets like South Korea allow voluntary credits to offset mandatory emissions, and India may follow suit.
2025 Update: The offset mechanism is live, with BEE-defined methodologies ensuring credit quality.
Carbon Credit Pricing: Learning from the Past
Pricing is crucial for market success. In PAT’s early cycles, liberal targets led to an oversupply, with nearly half the credits unsold. China’s Emissions Trading Scheme faced similar issues, with prices dropping below $1 USD.
To avoid this, India is likely to set a floor price around $4 USD for CCTS credits, ensuring market stability. Phased targets for 2025-26 balance ambition with practicality.
International Trading: Article 6.2 and ITMOs
Under Article 6.2 of the Paris Agreement, India trades Internationally Traded Mitigation Outcomes (ITMOs) bilaterally to meet NDCs. These credits, covering projects like:
Green hydrogen
Second-generation ethanol
Sustainable aviation fuel
Carbon capture and storage (CCUS)
Hard-to-abate sectors
fetch higher prices than domestic credits. However, overlapping with CCTS sectors risks double-counting, and projects need approval from the NDIAPA (MoEFCC), as reductions count toward the buyer’s country.
Current Deals: India’s Joint Crediting Mechanism (JCM) with Japan is active, with talks progressing for South Korea and Singapore.
Voluntary Carbon Markets: Premium Opportunities
India’s Voluntary Carbon Markets (VCMs), run by registries like Gold Standard and Verra, are booming. Companies buy these credits for sustainability branding—Google recently paid over $100 USD per credit for Indian biochar credits!
Soon, VCMs will align with Article 6.4 (Sustainable Development Mechanism), replacing the Kyoto Protocol’s CDM. This opens doors for SMEs and NGOs in projects like reforestation or community renewables.
Why Carbon Markets Matter for India
Carbon markets aren’t just about trading—they’re about redirecting finance to fight climate change. The ICM’s credibility is recognized by the EU’s Carbon Border Adjustment Mechanism (CBAM), helping exporters like steel and aluminum avoid tariffs.
But India’s needs are unique. With 50% of our workforce in agriculture, climate finance must flow to farms, forests, rivers, and oceans—often neglected in favor of industrial development. The excuse that quantifying emissions from nature-based solutions is “too hard” doesn’t hold up. If we can estimate global emissions, we can model regenerative agriculture or blue carbon initiatives to address biodiversity loss and coastal erosion.
Policy Challenge: Expand carbon markets to fund nature-based solutions for equitable climate action.
How to Get Involved
Obligated Entities: Meet targets and trade credits on CCTS platforms.
Project Developers: Register offset projects with BEE or VCM registries.
Buyers/Investors: Explore voluntary credits or ITMOs.
Stay Informed: Follow MoEFCC and BEE updates for 2025-26 cycles.
India’s carbon markets are a game-changer, blending compliance, innovation, and global cooperation. How are you engaging with this green revolution? Share your thoughts below! 👇
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