Carbon Credit Trading Scheme (CCTS) 2023: Assessing India’s First Mandatory Carbon Market and Its Path to Net-Zero

Policy Update

Sandra Menon

Introduction

India has spent decades regulating how much energy its industries use, but until now it never had a legal mechanism to price how much carbon those industries actually emit. The Carbon Credit Trading Scheme (CCTS) changes that. Notified by the Ministry of Power on 28 June 2023 under Section 14AA of the Energy Conservation (Amendment) Act, 2022, CCTS establishes India’s first mandatory domestic carbon market, built around energy-intensive industries that together account for a sizable share of the country’s industrial emissions.

The scheme’s basic premise is simple. Energy-intensive firms are assigned a target for how much greenhouse gas they can emit per unit of output; firms that beat the target earn tradable Carbon Credit Certificates (CCCs), while firms that miss it must buy certificates or pay a penalty. As of mid-2026, the Bureau of Energy Efficiency and the Ministry of Environment, Forest and Climate Change’s own notifications put the number at close to 490 entities across seven sectors, all carrying legally binding targets, with compliance trading expected to go live later this year.

Background

CCTS didn’t just show up. It expands upon the Perform, Achieve and Trade (PAT) program, a required energy-efficiency initiative that has been implemented since 2012 for over 1,000 industrial organizations in 13 industries. PAT encouraged industry to use less energy, although it was only intended to monitor energy use and not actual greenhouse gas emissions. That disparity grew more difficult to defend as India’s climate pledges got more stringent, especially its revised Nationally Determined Contribution, which calls for reducing GDP emissions by 45% below 2005 levels by 2030 and achieving net-zero emissions by 2070.

By adding Section 14AA to the parent Act of 2001 to permit the notification of a carbon credit trading mechanism, the Energy Conservation (Amendment) Act, 2022 provided the government with the necessary legal foundation. About a year later, the Ministry of Power released CCTS after consulting with the Bureau of Energy Efficiency (BEE).

A second track, called Offset Mechanism, was added to the program in December 2023. This allows non-obligated firms, or businesses not subject to mandated objectives, to register voluntary emission reduction, removal, or avoidance initiatives and receive tradable credits for them. With a mandated compliance arm and a voluntary offset arm operating concurrently, that one addition transformed CCTS from a solely industrial-compliance instrument into something more akin to a complete domestic carbon market.

Table 1: CCTS at a Glance

Source: Ministry of Power; Bureau of Energy Efficiency notifications; International Carbon Action Partnership.

Functioning

CCTS runs on an intensity-based baseline-and-credit model, a meaningfully different design from cap-and-trade systems like the EU Emissions Trading System (EU ETS), where a hard, shrinking ceiling caps total emissions outright. Under CCTS, obligated entities are instead assigned a GHG Emission Intensity (GEI) target, measured as emissions per unit of output, using FY 2023-24 as the baseline year. Firms that beat their target earn CCCs; firms that fall short must either buy CCCs from the market or pay an environmental compensation penalty equal to twice the average CCC price.

Running the scheme is deliberately spread across several institutions, so that no single body controls both rule-setting and enforcement.

Table 2: Institutional Roles under CCTS

Source: International Carbon Action Partnership; Bureau of Energy Efficiency; CERC regulations, 2026.

On the trading side, the Central Electricity Regulatory Commission (CERC) notified the Terms and Conditions for Purchase and Sale of Carbon Credit Certificates Regulations, 2026 on 27 February 2026. The regulations set up monthly trading windows by default on India’s power exchanges, Indian Energy Exchange (IEX), Power Exchange India Limited (PXIL), and Hindustan Power Exchange (HPX), with T+1 settlement, which is the mandatory pay-in/pay-out cycle completed the day after power delivery, along with anti-manipulation safeguards: entities that oversell certificates beyond their verified holdings more than three times in a quarter face a six-month trading ban.

Performance

Sectoral rollout has happened in phases, and more slowly than originally planned. The first four sectors, aluminium, cement, chlor-alkali, and pulp and paper, covering 282 plants, received their final GEI targets in October 2025. Three more sectors, petroleum refining, petrochemicals, and textiles, followed in January 2026, bringing the total obligated entity count to roughly 490 across seven sectors. Iron and steel and fertiliser notifications remain pending, which means the scheme is still mid-rollout rather than fully operational.

Some of India’s most emissions-intensive industries would be included in the scheme once these two sectors are notified, probably after the current phase is over. This would significantly increase the scheme’s overall coverage and probably tighten demand for certificates, which could put fresh pressure on early carbon prices.

Table 3: Sectoral Rollout under the Compliance Mechanism

*Figures compiled from Bureau of Energy Efficiency / MoEFCC gazette notifications and secondary analyses (ICAP, IETA, CEEW); minor variation exists across sources as sub-sector detail continues to be published in phases.

Once all nine sectors are notified, the scheme is expected to cover roughly 700 million tonnes of carbon dioxide equivalent a year, placing India among the largest emissions trading systems in the world by coverage. The majority of the reductions needed in this first phase can be accomplished through low-cost, or even cost-saving, measures, according to an analysis by the Council on Energy, Environment, and Water (CEEW) that modelled marginal abatement cost curves for cement, aluminum, iron, and steel. This suggests the initial compliance burden may be more manageable for industry than early critics feared.

In terms of infrastructure, BEE has released the first version of its Detailed Procedure for the Offset Mechanism and published its list of Accredited Carbon Verification Agencies. It has also approved eight approaches for the voluntary market, including projects involving offshore wind, green hydrogen, renewable energy, industrial energy efficiency, landfill methane recovery, mangrove restoration, and compressed biogas. Even after CERC’s 2026 trading regulations were announced, floor and forbearance prices for CCCs had not been formally set. However, analyst estimates place likely early-phase prices between Rs 600 and Rs 1,200 per tonne of CO2e.

Impact

It would be premature to compare the Carbon Credit Trading Scheme to real emission-reduction results at this time because compliance trading has not yet gone live. At this point, its anticipatory effect, which is the way businesses and legislators are already acting in anticipation of the plan rather than in reaction to its outcomes, can be fairly evaluated.

The European Union’s Carbon Border Adjustment Mechanism, which began its financial phase in 2026 and levies fees on imports of steel, cement, aluminum, and fertilizer based on their inherent carbon, is the most obvious example of this effect. Not coincidentally, this mechanism targets the same industries that the Carbon Credit Trading Scheme covers first. Even before the mechanism’s financial obligations went into effect, exports of steel and aluminum to the EU had already softened. According to industry estimates, if decarbonization efforts don’t keep up, Indian steel exporters may be subject to carbon charges totaling thousands of crores of rupees by 2030.

Therefore, rather than being transformational, the scheme’s most noticeable effect to date has been defensive. Its main purpose is to enable Indian companies to show European authorities a reliable local carbon price, which lowers the amount they would otherwise owe at the border. Only until trading is operational and at least one complete compliance cycle has concluded will it be possible to determine if it also promotes deeper industry decarbonization beyond this trade-defense role.

Emerging Issues

As CCTS approaches its first trading window, a number of design flaws become apparent. In contrast to EU ETS-style systems, the plan restricts emissions intensity rather than absolute output, allowing total emissions to continue rising even as individual firms improve. This structural divergence, according to detractors, might undermine the legitimacy of Indian carbon prices abroad. Analysts at the Institute for Energy Economics and Financial Analysis (IEEFA) have separately flagged that indefinite banking of unused credits, without a rule-based Price or Supply Adjustment Mechanism, risks the kind of prolonged oversupply and depressed pricing that weakened early phases of the European Union Emissions Trading System (EU ETS) itself.

Overlap is a related issue. In theory, the Offset Mechanism, international I-RECs, and Renewable Energy Certificates produced under the Renewable Purchase Obligation framework might all be claimed for the same clean generation unit, and the existing laws do not yet address how double-counting will be avoided.

A related concern is market liquidity: with only about 490 entities trading in the scheme’s initial phase, low trading volumes could make early carbon prices erratic and manipulable until participation grows to the point where prices accurately reflect supply and demand rather than the actions of a small number of powerful players. All of this is made worse by the power sector’s ongoing exclusion, which excludes fuel-switching decisions and makes it India’s biggest source of emissions. All of this is made worse by the power sector’s ongoing exclusion, which excludes fuel-switching decisions that are crucial for a really credible national carbon price. The power industry is India’s greatest source of emissions.

Maintaining timelines has also proven challenging. The trading debut itself, which was once anticipated by mid-2026, has now been delayed toward the third quarter of the year by some estimates, while sectoral notifications that were formerly anticipated earlier fell into October 2025 and January 2026. The same industries that the program depends on for participation may lose faith in it if this pattern of delays is not addressed.

Way Forward

As CCTS transitions from design to actual operation, a few specific actions could significantly strengthen it. Instead of relying solely on analyst conjecture for early price discovery, the industry would have a solid foundation for investment planning if floor and forbearance prices were made public far in advance of the trading launch. Additionally, implementing a clear, even modest, Price or Supply Adjustment Mechanism would prevent the oversupply issues that undermined similar programs in other places during their early stages.

The overlap between CCC offsets, RECs, and I-RECs should be resolved by regulators prior to the start of trading, as this type of uncertainty poses a credibility risk that is more difficult to address once markets are operational and positions are already held. The scheme’s capacity to influence actual investment decisions, not just industry compliance behavior, would be greatly enhanced by establishing a gradual but plausible path toward eventually integrating the electricity sector into CCTS.

It would also help to explore Article 6 linkages with countries that already run their own carbon markets, Japan’s bilateral crediting mechanism, Singapore’s carbon tax, and South Korea’s emissions trading scheme, so Indian industry can capture real value from decarbonisation rather than treating the Carbon Credit Trading Scheme as just a compliance cost.

Lastly, a clear, updated public calendar for the remaining sectoral notifications and the trading start would help to preserve confidence in the process itself, especially considering how frequently previous timelines have already changed.

References

1. Ministry of Power, Government of India. (2023). Carbon Credit Trading Scheme, 2023, Notification No. S.O. 2825(E), 28 June 2023.

2. International Carbon Action Partnership (ICAP). (2026). Indian Carbon Credit Trading Scheme. https://icapcarbonaction.com/en/ets/indian-carbon-credit-trading-scheme

3. International Carbon Action Partnership (ICAP). (2026). India notifies emission intensity targets for nine sectors under Carbon Credit Trading Scheme. https://icapcarbonaction.com/en/news/india-notifies-emission-intensity-targets-nine-sectors-under-carbon-credit-trading-scheme

4. Council on Energy, Environment and Water (CEEW). (2026). How India’s final emission reduction targets can shape carbon market dynamics. https://www.ceew.in/blogs/how-indias-final-emission-reduction-targets-can-shape-carbon-market-dynamics

5. IEEFA. (2025). Why India’s carbon market needs a price stability mechanism. https://ieefa.org/resources/why-indias-carbon-market-needs-price-stability-mechanism

6. IEEFA. (2026). Potential drivers of carbon price formation in the CCTS. https://ieefa.org/resources/potential-drivers-carbon-price-formation-ccts-design-and-market-dynamics-indian-carbon

7. SolarQuarter. (2026). CERC Notifies 2026 Regulations To Formalize India’s Carbon Credit Trading Market. https://solarquarter.com/2026/03/03/cerc-notifies-2026-regulations-to-formalize-indias-carbon-credit-trading-market/

8. Reclimatize.in. (2026). India’s CCC Carbon Credit Market: CERC 2026 Trading Regulations, Price Band and What Happens Next. https://reclimatize.in/india-ccc-carbon-credit-market-ccts-trading/

About the Contributor

Sandra Menon is a Research and Editorial Intern at IMPRI and a first-year Master’s student in Public Policy at M.O.P. Vaishnav College for Women, Chennai. Her academic interests lie in public policy and governance.

Acknowledgement

The author extends sincere thanks to the IMPRI team for their guidance.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.

Reviewed by: CB Kavin Adithya & Madhuritha D

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