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To meet its climate commitments under the Paris Agreement, India is moving towards a market-based mechanism for emissions reduction through the Carbon Credit Trading Scheme (CCTS), 2023. The scheme was made possible by amending the Energy Conservation Act, 2021 and replaces the Perform, Achieve, and Trade (PAT) scheme operational since 2012.

What is the Carbon Credit Trading Scheme (CCTS)?

• CCTS is India’s version of an emissions trading system (ETS) designed to reduce greenhouse gas (GHG) emissions intensity — emissions per unit of output — rather than absolute emissions.
• It introduces Carbon Credit Certificates (CCC), each representing one tonne of CO? equivalent (tCO?e) reduction.
• Managed by the Bureau of Energy Efficiency (BEE) and coordinated by a National Steering Committee, the scheme involves various regulatory bodies including electricity exchanges, MoEFCC, and the Central Electricity Regulatory Commission.

Key Features of the CCTS

Aspect                                                             Description

Transition from PAT             -           Shifts focus from energy efficiency (PAT) to emission intensity (CCTS).

Coverage                                     -            Initially targets energy-intensive sectors: Iron & Steel, Cement, Aluminium,

                                                            Fertilisers, Refineries, Pulp & Paper, and Textiles (~16% of national

                                                            GHG emissions). Power sector (~40%) may be included later.

Dual Mechanisms                 -             1. Compliance: Mandates targets for large emitters. 2. Offset:

                                                             Voluntary participants earn credits by reducing emissions.

Implementation Timeline        -     Expected to launch fully by mid-2026, in a phased manner.

Global Context of Carbon Pricing

• As of June 2024, 89 countries operate carbon pricing mechanisms, covering 12.8 Gt CO?e (25% of global emissions).
• Carbon pricing methods:
  • ETS (Cap-and-Trade / Baseline-and-Credit): Companies trade allowances or credits based on performance.
  • Carbon Tax: Fixed price on emissions; provides cost certainty but not emissions certainty.
  • Crediting Mechanism: Projects generating verified emission reductions earn tradable carbon credits.

Challenges in Implementing CCTS

• Target Setting: Overly lenient targets may cause credit oversupply, reducing prices; overly strict ones risk high compliance costs.
• Compliance Gaps: Under PAT, over half the required energy certificates were never purchased, with no penalties imposed.
• Delays: Credit issuance under PAT (Phase IV onwards) has been delayed since 2021, affecting market confidence.
• Transparency: Lack of public access to data on actual performance undermines accountability.
• Monitoring and Verification (MRV): Requires robust systems to prevent double counting and ensure credible reporting.

Steps to Strengthen India’s Carbon Market

• Align with global practices: Learn from the EU ETS — implement strict monitoring, gradual tightening of caps, and price stability mechanisms.
• Robust MRV Framework: Ensure accuracy in emission data to boost trust.
• Digital Trading Platform: Track and authenticate credit transactions; avoid fraud.
• Industry Incentives: Encourage early compliance via tax benefits and access to green finance.
• Trade Compatibility: Prepare for global measures like the EU’s Carbon Border Adjustment Mechanism (CBAM) by ensuring transparency and comparability.

India’s CCTS represents a significant shift in climate governance by institutionalizing carbon pricing. While it brings India in line with evolving global practices, the success of the Indian carbon market will depend on credible enforcement, transparent functioning, and strong regulatory architecture. If implemented effectively, it can drive low-carbon growth and support India’s target of reducing emissions intensity by 45% by 2030.