India’s commitment to tackling climate change took a definitive turn with the formal launch of the Carbon Credits Trading Scheme (CCTS), 2023, under the Energy Conservation Act, 2001. Notified on June 28, 2023, the scheme lays the foundation for a national carbon market, aiming to reduce greenhouse gas (GHG) emissions through market-based incentives. It’s a framework that enables both environmental and economic progress—by monetizing emission reductions and penalizing excessive pollution.
What is the Carbon Credits Trading Scheme?
The Carbon Credit Trading Scheme is a market-based mechanism aimed at reducing greenhouse gas emissions by allowing the buying and selling of carbon credits. One carbon credit represents the reduction or removal of one metric ton of carbon dioxide or its equivalent from the atmosphere. This system operates through two main markets: the compliance market and the voluntary market. In the compliance market, governments set emission limits for industries, and companies that emit less than their allowed quota can sell their surplus credits to those that exceed their limits. In contrast, the voluntary market allows organizations and individuals to purchase carbon credits to offset their carbon footprint voluntarily. The scheme incentivizes investments in environmentally friendly projects such as renewable energy, reforestation, and energy efficiency, making it a flexible and cost-effective tool for achieving climate goals and promoting sustainable development.
1. National Steering Committee (NSC)
The central governing body of the scheme is the National Steering Committee for the Indian Carbon Market, led by the Secretary of the Ministry of Power. This committee brings together representatives from key ministries such as Environment, Finance, Steel, Coal, Petroleum, and others. It plays a crucial role in making high-level policy decisions, setting emission reduction targets for various industries, and advising on the overall design of the carbon market—including future linkages with international carbon trading platforms.
2. Bureau of Energy Efficiency (BEE)
The BEE acts as the Administrator of the Indian carbon market. It identifies sectors to be covered, develops compliance trajectories, accredits verification agencies, and issues carbon credit certificates. It also oversees capacity-building, IT infrastructure, and formulates procedures for credit issuance, renewal, and expiration.
3. Grid Controller of India (Registry)
The Grid Controller of India Limited serves as the official Registry. It manages the secure digital infrastructure that maintains records of registered entities, carbon credit transactions, and data interoperability with power exchanges and potential global registries.
4. Central Electricity Regulatory Commission (CERC)
The CERC acts as the Regulator of trading activities. It ensures market transparency, protects the interests of buyers and sellers, and regulates trading frequency, pricing mechanisms, and operational rules of power exchanges authorized for carbon credit trading.
The carbon market will operate through an electronic platform Power Exchanges registered with the CERC. These platforms will allow carbon credit certificates to be bought and sold, similar to financial instruments. The exchanges must seek approval for their bylaws and operational procedures from the regulator.
The scheme also mandates the development of a “meta-registry”—a national greenhouse gas database that integrates inventory, monitoring, and market-based mechanism data, and can interact with other national or international registries. This signals India’s intent to eventually align with global carbon markets.
For the carbon market to function effectively, each of these trading platforms will be required to submit their bylaws and operational procedures to CERC for approval. This ensures that all market activities are aligned with the regulatory framework set by the government, safeguarding the integrity of the transactions. These exchanges will act as the primary venues where carbon credits are exchanged, ensuring liquidity, price discovery, and transparency within the market.
One of the unique features of the scheme is the creation of a meta-registry—a central national greenhouse gas registry that will track and record all carbon credit transactions. This meta-registry will serve multiple critical functions. It will:
1. Integrate Data: Collect and manage data on emissions reductions, market transactions, and the progress of different sectors toward their environmental goals.
2. Manage Inventory: Serve as a national inventory management system for tracking carbon credits issued, traded, and retired.
3. Provide Transparency: Ensure transparency by maintaining a public record of all carbon credit transactions, making it easier for companies, regulators, and the public to monitor compliance and market activity.
This registry will also be linked with other national or international registries, allowing for potential cross-border carbon credit trading. This could pave the way for India to eventually engage in global carbon markets, creating broader trading opportunities and facilitating international investments in India’s emission reduction efforts.
Under CCTS, the Ministry of Power, in consultation with BEE, will determine the sectors and entities that fall under the compliance mechanism. These “obligated entities” will be assigned emission intensity targets, which are based on the amount of CO₂ e emitted per unit of product output. Those who exceed the target must purchase credits from the market, while those who beat the target can sell their surplus.
The Ministry of Environment, Forest and Climate Change will officially notify these targets under the Environment Protection Act, 1986. Additionally, targets could include energy consumption thresholds, use of renewable energy, or specific clean technology adoption metrics.
To ensure integrity, accredited carbon verification agencies (ACVAs) will be appointed to validate emission reduction claims. These agencies must meet eligibility criteria set by BEE and will work in accordance with approved procedures.
Additionally, technical committees can be formed to address sector-specific needs or technical complexities, providing recommendations and ensuring that standards are consistently applied across the market.
The scheme outlines that detailed operating procedures will be developed, covering:
• Eligibility and criteria for issuing carbon credits
• Validity, renewal, and expiry timelines
• Floor and ceiling prices for credits
• Submission formats, timelines, and verification protocols
This ensures that the carbon market remains stable, fair, and resistant to price volatility or manipulation.
Benefits and Opportunities
• The Carbon Credit Trading Scheme offers several benefits:
• For the Environment: Reduces national GHG emissions, promotes cleaner technologies, and supports India’s climate commitments.
• For Industries: Provides financial incentives for energy efficiency and emissions reductions; offers a new revenue stream through credit trading.
• For the Economy: Facilitates green investment, fosters climate finance, and positions India as a serious player in global carbon markets.
India’s Carbon Credit Trading Scheme, 2023, marks a critical transition toward market-driven climate governance. It embeds emissions accountability into the core of industrial operations while rewarding innovation and sustainability. With a robust institutional framework, strong compliance systems, and clear regulatory oversight, CCTS sets the stage for a credible and efficient Indian carbon market.
As implementation moves forward, success will depend on transparent governance, industry participation, and continuous capacity-building.
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