Carbon Credit Trading Scheme

What is the Carbon Credit Trading Scheme?

The Carbon Credit Trading Scheme is the policy instrument that establishes the Indian Carbon Market as a regulated trading environment for greenhouse gas reductions. It is structured to operate alongside India’s broader climate commitments under the updated Nationally Determined Contributions (NDCs) and the Long-Term Low-Emission Development Strategy submitted to the United Nations Framework Convention on Climate Change.

The scheme draws its authority from the Energy Conservation (Amendment) Act 2022, which inserted Section 14AA into the Energy Conservation Act 2001 and empowered the Central Government to specify a carbon credit trading scheme through notification. The CCTS notification dated 28 June 2023, subsequent amendments, and detailed procedures issued by the Bureau of Energy Efficiency (BEE) together constitute the operational framework of the Indian Carbon Market.

Key Features of the Carbon Credit Trading Scheme

The CCTS architecture combines a mandatory emissions-intensity-based compliance market with a parallel offset market. The two markets share infrastructure but operate under different eligibility rules and reporting obligations. Understanding the boundary between the two is the most important conceptual step for any business assessing CCTS participation.

Dual Mechanism: Compliance Track and Offset Track

The dual-track design is the structural innovation of the Indian Carbon Market. It allows a common registry and trading infrastructure with certificates from each mechanism recorded and tracked separately through the registry system.

• Compliance track: covers obligated entities across nine energy-intensive sectors notified by the Central Government, with each obligated entity assigned a greenhouse gas emission intensity target on a sector-and-product basis
• Compliance certificates are issued to obligated entities that outperform their assigned greenhouse gas emission-intensity targets and may be used by other obligated entities to meet compliance requirements.
• Offset track: covers non-obligated entities running voluntary mitigation projects approved against published Indian Carbon Market methodologies
• Offset certificates are issued following monitoring and independent third-party verification and are tradable through the Indian Carbon Market framework, including recognized power exchanges, subject to applicable regulatory provisions. 

Institutional Framework and Oversight

Each institutional layer of the CCTS performs a defined function and reports through a defined chain. The separation of administration, verification oversight, registry operation, and trading prevents the conflicts of interest that have undermined credibility in some other national carbon markets.

• National Steering Committee for Indian Carbon Market (NSC-ICM): Policy oversight, target recommendations, credit issuance approval.
• Bureau of Energy Efficiency (BEE): Market administration, sectoral target development, issues Carbon Credit Certificates, accredits verification agencies.
• Grid Controller of India (GCI): Registry operator responsible for recording CCC issuance, transfer, ownership, and retirement.
• Central Electricity Regulatory Commission (CERC): Regulates CCC trading and oversees market operations through designated power exchanges.

Project Eligibility and Scope

Project eligibility under the Offset Mechanism is determined by methodologies approved and published under the Indian Carbon Market (ICM) framework. Non-obligated entities seeking registration of an ICM project must demonstrate compliance with the applicable methodology, establish an appropriate baseline scenario, demonstrate additionality, estimate ex-ante emission reductions or removals, and develop a monitoring plan in accordance with the requirements of the selected methodology. 

To qualify for registration, project developers are required to:

• Establish and justify a baseline scenario that reflects the most plausible “business-as-usual” case in the absence of the project activity.
• Demonstrate additionality by showing that the project’s emission reductions or removals would not occur without the incentives provided by Carbon Credit Certificates (CCCs). 
• Quantify anticipated greenhouse gas emission reductions or removals using approved methodologies and calculation procedures. 
• Develop and implement a monitoring plan covering data collection, measurement procedures, calibration requirements, quality assurance, and record retention. 
• Conduct stakeholder consultations and assess the project’s environmental and social impacts in line with sustainable development requirements. 

Project activities may involve greenhouse gas emission reductions, avoidance, or removals, provided they comply with approved methodologies and satisfy all applicable registration, validation, monitoring, and verification requirements under the Indian Carbon Market framework. 

How CCTS Trading Works and Ensures Market Credibility?

CCTS trading runs on a registry-and-exchange architecture similar to mature international carbon markets. The unit traded is the Carbon Credit Certificate, denominated in one metric ton of CO2e and uniquely serial-numbered on issuance. Trading takes place through recognized power exchanges, while issuance, transfer, retirement, and record-keeping are maintained through the Grid Controller of India (GCI) infrastructure.

Issuance, Trading, and Retirement Workflow

The lifecycle of a Carbon Credit Certificate begins with project registration and culminates in its retirement against a compliance obligation or voluntary climate claim, as applicable. Each transaction is recorded within the registry system, creating an auditable record that supports transparency and helps prevent double counting.

Project developers prepare a Project Design Document (PDD) in accordance with an approved methodology and engage an Accredited Carbon Verification Agency (ACVA) to undertake validation. Following registration, the project is monitored in accordance with the approved monitoring plan, and the resulting emission reductions or removals are verified by an ACVA. Upon successful verification, Carbon Credit Certificates are issued to the project participant’s registry account. These certificates may subsequently be transferred, traded, or retired in accordance with applicable CCTS regulations.

The end use of a certificate is determined at the point of retirement in accordance with the applicable provisions of the compliance or offset mechanism.

Market Credibility Safeguards

Market credibility in any carbon trading scheme rests on the integrity of the units traded. The CCTS framework incorporates safeguards designed to ensure that emission reductions and removals are real, measurable, verifiable, and transparently recorded.

The core safeguards in operation are:

• Independent validation and verification by Accredited Carbon Verification Agencies (ACVAs), with accreditation administered by BEE under the CCTS framework. 
• Registry-level enforcement of unique serial numbers at issuance and prevention of transfer of retired certificates
• Methodology-level requirements for additionality demonstration, baseline justification, and conservative emission reduction calculations
• Monitoring requirements covering data collection, calibrated measurement equipment where applicable, quality assurance procedures, record retention, and periodic monitoring reports. 

Together, these safeguards enhance the credibility and traceability of Carbon Credit Certificates and support their potential use in corporate sustainability, climate, and ESG reporting frameworks.

CCTS Current Status

The implementation of the Carbon Credit Trading Scheme (CCTS) is progressing through both the Compliance and Offset Mechanisms. Under the Compliance Mechanism, greenhouse gas emission intensity targets have been notified for identified energy-intensive sectors, with obligated entities undertaking baseline emissions reporting and compliance-related activities.

Under the Offset Mechanism, the institutional framework, validation and verification procedures, registry infrastructure, methodologies, and supporting tools have been progressively developed and notified. Several methodologies and tools have already been published under the Indian Carbon Market framework, enabling the registration and development of eligible mitigation projects. Project proponents have also commenced the submission of projects for registration under the Offset Mechanism.

In parallel, additional methodologies covering emerging sectors and project activities continue to be developed and reviewed. Among these are methodologies addressing circular economy interventions, including the quantification of greenhouse gas emission reductions from End-of-Life Vehicle (ELV) material recovery and vehicle scrappage activities, which have been submitted for review under the Indian Carbon Market framework. As the methodology portfolio expands, the Offset Mechanism is expected to support a broader range of emission reduction, avoidance, and removal projects across sectors.

Why CCTS Matters for Indian Businesses?

The CCTS reshapes the carbon strategy conversation for Indian businesses in two distinct ways depending on whether the business is an obligated entity or a voluntary market participant. The strategic implications differ sharply between the two, and conflating them is the most common analytical error in business-side CCTS reporting.

What CCTS Means for Energy-Intensive Industries

Energy-intensive obligated entities face a structural change in their emissions performance accountability. Greenhouse gas intensity targets replace the energy-intensity targets that operated under the Perform Achieve and Trade scheme, with non-compliance carrying penalties under the Energy Conservation Act.

• Cement, iron and steel, aluminium, fertilisers, refineries, petrochemicals, pulp and paper, chlor-alkali, and textiles are among the energy-intensive sectors identified under the Compliance Mechanism.
• Obligated entities must submit baseline emissions data, accept sectoral intensity targets, monitor and report emissions under approved protocols, and either outperform their target or buy certificates to make up the shortfall.
• Compliance reporting and verification requirements are undertaken in accordance with procedures notified under the CCTS framework. 
• Strategic implications include audit-grade emissions data infrastructure, sectoral benchmarking against intensity targets, and capital allocation decisions on abatement projects versus certificate procurement.

What CCTS Means for Voluntary Project Developers and Other Sectors

Voluntary project developers and non-obligated sectors gain access to a domestic carbon market framework that enables the generation and trading of Carbon Credit Certificates through approved methodologies and verification procedures. 

• Project developers must align with approved Indian Carbon Market methodologies, establish baseline scenarios, demonstrate additionality, engage Accredited Carbon Verification Agencies (ACVAs), and submit monitoring reports in accordance with applicable procedures.
• Emerging circular economy project categories, including End-of-Life Vehicle (ELV) material recovery and vehicle scrappage activities, are being explored under methodology development initiatives. Such projects may become eligible for Carbon Credit Certificates upon approval of applicable methodologies under the Indian Carbon Market framework. 
• Corporate buyers may purchase and retire Carbon Credit Certificates to support voluntary climate commitments, sustainability initiatives, and broader decarbonization strategies. 
• The voluntary market opportunity is largest for project types where international voluntary standards have historically dominated, with CCTS now providing a domestic alternative that aligns with India’s regulatory and disclosure environment.

The core principles of carbon credit issuance, trading, and retirement remain consistent with international carbon markets, while the Indian Carbon Market introduces country-specific governance through approved methodologies, the Accredited Carbon Verification Agency (ACVA) framework, and the Grid Controller of India registry infrastructure.

Conclusion

The Carbon Credit Trading Scheme (CCTS) represents a significant milestone in the evolution of India’s climate policy and carbon market ecosystem. Through its Compliance and Offset Mechanisms, the scheme establishes a domestic framework for the generation, trading, and retirement of Carbon Credit Certificates, enabling participation by both obligated entities and voluntary project developers.

For energy-intensive sectors, the Compliance Mechanism introduces greenhouse gas emissions accountability through sector-specific intensity targets. For non-obligated entities, the Offset Mechanism creates opportunities to develop emission reduction, avoidance, and removal projects under approved Indian Carbon Market methodologies.

As additional methodologies are developed and more participants enter the market, the Indian Carbon Market is expected to play an increasingly important role in supporting emissions reductions, mobilizing climate finance, and advancing India’s broader climate and sustainable development objectives. The scheme also provides businesses with a domestic mechanism to integrate carbon management into long-term investment, decarbonization, and sustainability strategies.

FAQs

• National Steering Committee for Indian Carbon Market (NSC-ICM): Provides policy oversight and recommends sectoral targets.
• Bureau of Energy Efficiency (BEE): Administers the market, develops methodologies and procedures, accredits verification agencies, and oversees Carbon Credit Certificate (CCC) issuance.
• Grid Controller of India: Operates the national carbon registry and maintains records of CCC issuance, transfer, ownership, and retirement.
• Central Electricity Regulatory Commission (CERC): Regulates CCC trading and oversees market operations through designated power exchanges.