Carbon Credit Trading Scheme

India’s Carbon Credit Trading Scheme (CCTS) is a framework that uses tradable carbon credits to encourage reductions in greenhouse gas emissions. Its central objective is to reduce emissions through carbon pricing, allowing eligible participants to trade credits rather than requiring every participant to achieve reductions at the same cost.

Reduce emissions cost-effectively

The scheme seeks to make emissions reduction economically worthwhile. Participants that can reduce emissions relatively cheaply can generate eligible credits, while others can purchase credits to meet their obligations.

• The Energy Conservation Act, 2001, as amended in 2022, provides the statutory basis for specifying a carbon credit trading scheme.
• A market price for carbon credits gives participants a financial incentive to improve energy efficiency and adopt lower-emission technologies.
• Trading provides flexibility in meeting obligations and can lower the overall cost of achieving the prescribed emissions outcomes.

Reward better performance and widen participation

The scheme provides two routes for participation: a compliance mechanism for obligated entities and an offset mechanism for eligible non-obligated entities.

• Under the compliance mechanism, obligated entities must meet prescribed greenhouse gas emission-intensity targets. Emission intensity measures emissions per unit of output, rather than total emissions alone.
• Entities performing better than their prescribed targets can receive carbon credit certificates, while entities falling short must meet the shortfall through the prescribed purchase and surrender of certificates.
• The offset mechanism enables eligible non-obligated entities to register projects that reduce, avoid or remove greenhouse gas emissions and seek credits under approved procedures.
• The compliance mechanism therefore targets improved emissions performance; an intensity target does not itself impose a fixed ceiling on total emissions.

Build a credible market for the climate transition

The broader objective is to develop an Indian carbon market that supports national climate goals and encourages investment in low-carbon development.

• A common framework for credit issuance and trading helps organise participation and creates an economic reward for eligible mitigation activities.
• Monitoring, reporting and verification are essential to ensure that credits reflect emissions outcomes established under the scheme’s rules.
• The Bureau of Energy Efficiency administers the scheme, while the Central Electricity Regulatory Commission regulates trading activities.