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India’s Carbon Credit Trading Scheme: How the CCTS Works and What Every Obligated Entity Needs to Know

India’s Carbon Market Portal launched at the Prakriti 2026 conference in March 2026. Union Power Minister Shri Manohar Lal Ji announced that formal trading of Carbon Credit Certificates begins within four months — by July 2026. For 738 obligated industrial entities across nine sectors, compliance is no longer a future planning scenario. It is now.

By Reclimatize.in 29 March 2026 Carbon Markets  ·  Steel  ·  Aluminium  ·  Fertilisers  ·  Power

India has been building toward a domestic carbon market for years. The legal foundation came with the Energy Conservation (Amendment) Act in December 2022. The institutional framework was notified in June 2023. Detailed compliance regulations were adopted in July 2024. Emission intensity targets for the first four sectors were notified in April 2025, followed by the remaining five in June and January. And then, at the Prakriti 2026 International Conference on Carbon Markets held in New Delhi in late March 2026, the Indian Carbon Market Portal went live — and Power Minister Shri Manohar Lal Ji announced that formal trading of compliance Carbon Credit Certificates would begin within four months. (ESG Today, March 2026)

The Carbon Credit Trading Scheme is now, for the first time, an immediate operational reality for every energy-intensive industrial company in India’s nine covered sectors. Not something to prepare for. Something to comply with, starting from performance in FY 2025–26, with the first verified reporting cycle and credit issuance due by June 2026.

This article explains how the CCTS actually works — the mechanics of the intensity-based design, how Carbon Credit Certificates are earned and surrendered, who administers the market, what the compliance timeline looks like, how the scheme connects to CBAM and India’s broader climate commitments, and what the practical steps are for every obligated entity before trading begins. For the strategic context of how the CCTS fits within India’s 2035 NDC framework, see our recent analysis: India’s 2035 NDC and What It Actually Means for Industrial Decarbonisation.

The legal foundation — from Energy Conservation Act to Carbon Market Portal

India’s domestic carbon market did not emerge from nothing. It is built on more than two decades of industrial energy regulation, most notably the Perform, Achieve and Trade scheme that ran under the Energy Conservation Act 2001. Understanding the CCTS requires understanding what the PAT scheme was, why it was insufficient, and what exactly changed when Parliament amended the Energy Conservation Act in 2022.

The PAT scheme set mandatory specific energy consumption targets for designated consumers in energy-intensive sectors, measured in tonnes of oil equivalent per unit of output. Companies that exceeded their targets earned Energy Saving Certificates (ESCerts) that could be traded with under-performers. The scheme was effective at driving energy efficiency improvements — by PAT Cycle I, over 106 million tonnes of CO₂ equivalent in savings were achieved across covered sectors. (BEE, PAT Scheme)

But the PAT scheme had a fundamental limitation. It measured energy intensity, not greenhouse gas emissions. A company could meet its PAT target by improving fuel efficiency while still having very high actual carbon emissions if it was burning particularly carbon-intensive fuels. It was also not compatible with international carbon pricing frameworks like CBAM, which require verified emissions data in tCO₂e — not energy savings in toe. And it covered only the energy dimension of industrial decarbonisation, not the full scope of a company’s carbon footprint including process emissions and indirect electricity.

The Energy Conservation (Amendment) Act of December 2022 addressed this directly by creating a new legal foundation for an emissions-based carbon market. (BEE, Carbon Market) The amendment empowered the government to establish a Carbon Credit Trading Scheme, mandate GHG emission intensity targets for obligated entities, and authorise designated agencies to issue Carbon Credit Certificates representing one tonne of CO₂ equivalent reduction. The CCTS was formally notified in June 2023. Detailed compliance regulations were adopted in July 2024. And the Indian Carbon Market Portal, the digital backbone that makes the market operationally real, launched in March 2026.

How the CCTS actually works — the mechanics of an intensity-based market

The CCTS is described as a baseline-and-credit system rather than a cap-and-trade system. This distinction matters enormously for understanding what it does and does not do, and why the design is appropriate for a rapidly growing industrial economy like India’s.

In a classic cap-and-trade system (like the EU ETS), the government sets an absolute limit on total emissions from covered entities. Allowances representing the right to emit one tonne of CO₂ are either auctioned or allocated, and entities must hold allowances equal to their total actual emissions. If a company emits more than it holds allowances for, it must buy more; if it emits less, it can sell surplus allowances. The cap limits the total volume of emissions regardless of economic growth.

The CCTS works differently. Rather than a total emissions cap, each obligated entity receives an emission intensity target — expressed in tCO₂e per tonne of product output, or per unit of production specific to their sub-sector. If a cement plant produces more cement in a year, it is allowed to emit proportionally more in absolute terms, as long as its emissions per tonne of cement meet the target. Total covered emissions can therefore rise if output grows. What the scheme targets is efficiency — emissions per unit of economic activity — rather than the absolute volume of industrial carbon output.

How Carbon Credit Certificates are earned and surrendered

The mechanics of CCC issuance and surrender follow a clear logic. At the end of each compliance year, an obligated entity calculates its actual GHG emission intensity for that year — verified by an Accredited Carbon Verification Agency (ACVA). This verified intensity is compared to the target intensity notified by MoEFCC for that entity and compliance year.

The nine covered sectors and their emission intensity targets

The CCTS compliance mechanism covers nine sectors in its first phase, all previously regulated under the PAT scheme. Each sector has sub-sector specific targets reflecting the different baseline intensities, technology options and abatement cost curves within that industry. The targets for the first two compliance years — FY 2025–26 and FY 2026–27 — have been notified. New three-year target cycles will be announced every three years, giving companies medium-term planning horizons. (ICAP, January 2026)

Sources: ICAP, January 2026; IETA Business Brief, July 2025; Sentra, sector-level targets. Baseline year: FY 2023–24 for all sectors.

Two aspects of the target structure are worth highlighting. First, the initial reductions are deliberately modest — averaging 1.68% annually across covered sectors, compared to the 2.53% that NITI Aayog’s modelling identifies as NDC-aligned for manufacturing. (PW Only IAS, 2025) This conservative start is intentional — it builds market familiarity, allows MRV infrastructure to mature, and gives companies time to understand their compliance position before targets tighten substantially in the next three-year cycle from FY 2027–28 onwards.

Second, the power sector — which contributes approximately 40% of India’s total GHG emissions — is not yet included. Experts consistently identify this as the most significant gap in CCTS coverage. Including the power sector would dramatically increase the market’s emissions coverage and improve price signal strength, but requires resolution of complex questions around distribution company revenue impacts and electricity tariff effects. The government has signalled that power will be added at a later stage. (PW Only IAS, 2025)

The institutional architecture — who runs the market and how

The CCTS involves four institutions with distinct and non-overlapping responsibilities. Understanding who does what is important for obligated entities navigating compliance, because different interactions — target notification, verification, registration, trading oversight — involve different agencies. (ICAP)

Bureau of Energy Efficiency (BEE) — the Administrator

BEE, under the Ministry of Power, is the primary administrator of the CCTS. It is responsible for identifying sectors, developing GHG emission intensity trajectories for each covered sector, setting benchmark targets for obligated entities, issuing Carbon Credit Certificates, and managing the overall IT and operational infrastructure of the Indian Carbon Market. BEE also accredits the Carbon Verification Agencies (ACVAs) that entities must use for mandatory independent verification. (BEE, beeindia.gov.in)

Ministry of Environment, Forest and Climate Change (MoEFCC) — Target Notification

MoEFCC is responsible for formally notifying the GHG emission intensity targets for each sector and sub-sector. While BEE develops the technical recommendations, MoEFCC makes them legally binding through Gazette notifications. MoEFCC also ensures that CCTS trajectories remain aligned with India’s NDC commitments and net-zero 2070 pathway. All the sector notifications issued in April 2025, June 2025 and January 2026 came from MoEFCC.

Grid Controller of India (GCI) — Registry Operator

GCI operates the central registry for the CCTS — the authoritative database that records the issuance, transfer, banking and surrender of every Carbon Credit Certificate. Every CCC has a unique identifier, an issuance year (vintage) tag, and a current holder recorded in the GCI registry. The Indian Carbon Market Portal that launched in March 2026 is the public interface built on top of this registry infrastructure. Obligated entities register on the portal and their compliance obligations and CCC balances are tracked there. (Carbon Credits, March 2026)

Central Electricity Regulatory Commission (CERC) — Trading Oversight

CERC provides market oversight and regulatory supervision for all CCC trading activities on India’s power exchanges. CERC has the authority to take corrective action to prevent fraud, market manipulation and other misconduct. The decision to route all CCC trading through regulated power exchanges — rather than allowing bilateral OTC trades — reflects a deliberate policy choice to ensure transparency and prevent the credibility problems that have affected some voluntary carbon markets globally. (ICAP, January 2026)

National Steering Committee for Indian Carbon Market (NSCICM)

The NSCICM, chaired by the Secretary, Ministry of Power and co-chaired by the Secretary, MoEFCC, provides overall policy oversight. It recommends procedures for institutionalising the Indian Carbon Market, finalises rules and regulations, and recommends GHG emission targets for obligated entities. It is the apex governance body for the ICM, with members from multiple ministries and relevant organisations. (BEE)

The compliance timeline — key deadlines for FY 2025–26

For obligated entities, the CCTS is not a future planning exercise. FY 2025–26 compliance has been ongoing since April 2025. Here is the critical timeline that every covered entity needs to be tracking right now. (Sentra, CCTS Compliance Guide)

The voluntary offset mechanism — the market beyond compliance

Alongside the compliance market for obligated entities, the CCTS includes a voluntary offset mechanism open to any entity not covered under the compliance scheme. This second pillar of the Indian Carbon Market is already being operationalised — as of March 2026, over 40 institutions have registered and nine offset methodologies are available covering biogas, hydrogen, forestry, waste, transport, agriculture and energy. (ESG Today)

Under the offset mechanism, eligible project developers submit a project plan, get it validated by an accredited verification agency, implement the project, and earn Carbon Credit Certificates if the project demonstrably reduces or removes GHG emissions relative to a business-as-usual baseline. These CCCs are the same instrument as those generated under the compliance mechanism — both are traded on the same power exchanges, both represent one tCO₂e, and both are tracked in the same GCI registry.

Projects eligible under Phase 1 of the offset mechanism include waste handling and disposal, industry projects, agriculture, energy (including renewable energy and energy efficiency), forestry and transport. Phase 2 will expand to solvent use, construction, fugitive emissions and carbon capture. An important restriction: offset mechanism projects must have a start date no earlier than 1 January 2025, and projects cannot be concurrently registered with any other carbon market — meaning credits generated under international voluntary standards like Verra’s VCS cannot simultaneously be recognised under the CCTS. (ICAP)

Critically, the current CCTS design does not allow offsets to be used by compliance entities to meet their mandatory targets — the compliance mechanism and the offset mechanism are separate. This is a deliberate design choice to maintain the environmental integrity of the compliance market during its initial phase, preventing companies from using cheap offset credits to avoid genuine emission intensity improvements in their own operations. (IETA)

The CBAM connection — why India’s carbon market is also a trade policy instrument

The most commercially urgent reason for Indian industrial exporters to understand and engage with the CCTS is not the domestic compliance obligation. It is the CBAM offset provision.

The EU’s Carbon Border Adjustment Mechanism, which entered its definitive financial phase on 1 January 2026, requires importers of covered goods to purchase CBAM certificates for the embedded emissions in their products — priced at the prevailing EU ETS carbon price, currently approximately €88 per tonne. But the CBAM regulation contains an explicit provision: any carbon price already paid in the country of origin can be deducted from the CBAM certificate obligation. This provision exists to prevent double taxation on carbon and to incentivise the development of domestic carbon markets in exporting countries.

If India’s CCTS is recognised by the European Commission as an equivalent carbon pricing mechanism, every Indian steel, aluminium and fertiliser exporter that has paid carbon costs under CCTS could deduct those costs from its EU CBAM obligation. The practical effect is that carbon revenue paid domestically under CCTS stays in India — flowing into the Indian government’s revenues and into industrial competitiveness programmes — rather than accruing to EU national budgets. CSEP estimates this potential deduction could be worth approximately 1% of India’s GDP by 2030. (CSEP, April 2025)

The development of India’s domestic carbon market is therefore not just a domestic climate policy question. It is a direct financial interest for every Indian industrial exporter to the EU — and one of the most powerful levers India has for reducing its net CBAM burden over the next decade. For the full picture of how CBAM exposure plays out for each sector, see our cluster: CBAM and Indian Steel, CBAM and Indian Aluminium, and CBAM and Indian Fertilisers.

What every obligated entity needs to do right now

With the Indian Carbon Market Portal live and trading four months away, there is no longer any runway for preparation. Every obligated entity across the nine covered sectors should be taking these steps immediately if it has not already done so.

Design risks and what India’s CCTS needs to get right

The CCTS has been designed carefully, but several structural risks have been identified by analysts that India’s policymakers need to address to ensure the scheme delivers credible, sustained carbon price signals rather than a low-price, low-impact compliance exercise.

Credit oversupply risk: IEEFA’s analysis identifies a potential supply-demand imbalance in the early years of the CCTS. The combination of conservative initial targets, unlimited banking, and the front-loading of low-cost abatement opportunities could generate a large surplus of CCCs — suppressing prices and weakening the investment signal. IEEFA recommends a price stability mechanism with three elements: a consignment auction system for transparent credit interventions, a vintage-based credit classification system to prevent indefinite banking accumulation, and a market monitoring function with defined intervention triggers. (IEEFA, Carbon Market Stability)

MRV infrastructure gaps: Credible carbon markets depend on accurate, auditable emissions data. The BEE’s January 2026 consultation on provisionally eligible ACVAs suggests the verification infrastructure is still being built out. If early-vintage CCCs are issued based on MRV processes of insufficient rigour, it could undermine the market’s credibility — particularly for the CBAM recognition question, where the European Commission will scrutinise the auditability of India’s carbon accounting. The investment in building strong MRV systems now is a prerequisite for everything else the CCTS is designed to achieve.

Power sector exclusion: The absence of the power sector — 40% of India’s emissions — means the CCTS price signal does not reach the largest single source of Indian GHG emissions. This limits the overall market depth and means that Scope 2 electricity emissions in covered sectors are priced through a mechanism (the emissions intensity target) without a direct carbon price on the electricity itself. Including the power sector in the CCTS, even progressively, is the most significant step India could take to increase the scheme’s environmental effectiveness. (PW Only IAS)

Greenwashing risk in offset mechanism: The voluntary offset mechanism creates the risk that credits are issued for emission reductions that would have occurred anyway (lack of additionality). India’s domestic experience with the CDM and some early PAT scheme trading outcomes highlights the importance of rigorous baseline-setting and project validation. The restriction on concurrent registration with international voluntary standards is a partial safeguard, but robust methodology development and strict ACVA oversight remain essential. (PW Only IAS)

These are design challenges, not fundamental flaws. The CCTS architecture is sound — intensity-based targeting is the right design for India’s development stage, the institutional framework is robust, and the exchange-traded model for CCCs ensures transparency. Getting the price stability mechanism, MRV quality and power sector inclusion right over the next two to three years will determine whether the CCTS becomes the global exemplar that India’s climate ambition warrants.

How the CCTS connects to each covered sector

The CCTS affects each of Reclimatize.in’s five covered sectors differently. These pages go into the specific emission intensity targets, decarbonisation pathways and CBAM interactions for each sector.