India's Carbon Credit Trading Scheme, Explained

India now has a domestic carbon market. Its legal basis is the Energy Conservation (Amendment) Act, 2022, which allowed the central government to specify a carbon credit trading scheme, and the Carbon Credit Trading Scheme, 2023, which set it up. The scheme has two parts. Under the compliance mechanism, plants in notified sectors must reduce the greenhouse gas emissions per unit of what they produce; those that do better than their target earn tradeable carbon credit certificates, and those that fall short must buy them. Under the offset mechanism, projects outside those sectors can earn certificates for reducing or removing emissions.

The scheme moved from paper to practice in 2025 and 2026. Emission intensity targets were notified for aluminium, cement, chlor-alkali, and pulp and paper in October 2025, and for petroleum refining, petrochemicals and textiles in January 2026, for the compliance years 2025-26 and 2026-27, with 2023-24 as the baseline. The Indian Carbon Market portal was launched on 21 March 2026. This guide explains how the scheme works in plain words. For our advisory service, see carbon credits.

The scheme in brief

Intensity targets, not a cap

Many carbon markets around the world cap total emissions. India's compliance mechanism does not. Instead, each obligated plant has a target for greenhouse gas emission intensity: tonnes of CO2 equivalent per tonne of product, such as cement or aluminium. The target is set with reference to the plant's own baseline in 2023-24, with reductions over the compliance years. This allows production to grow while requiring each unit of production to become cleaner.

At the end of a compliance year, the plant's actual intensity is measured and verified by an accredited carbon verification agency. If it is below the target, the plant earns certificates equal to the difference multiplied by its output. If it is above, it must surrender certificates to cover the shortfall, which it can buy on the market. Failure to surrender enough certificates attracts consequences under the Energy Conservation Act.

The offset mechanism

The offset mechanism lets entities that are not obligated register projects that reduce, remove or avoid emissions, using methodologies approved under the scheme, and earn certificates after validation and verification. Methodologies approved so far have covered areas such as renewable energy, green hydrogen, industrial energy efficiency, landfill methane recovery and mangrove afforestation, with more expected. Offset certificates can be sold, including, as the rules permit, to obligated entities. This creates a new domestic revenue route for climate projects, alongside international voluntary standards.

How the compliance cycle runs

Key dates and facts

Who runs it

The Bureau of Energy Efficiency is the administrator, responsible for targets, methodologies, accreditation of verification agencies and the scheme's operation. The Grid Controller of India acts as the registry that records certificates and transactions. Trading takes place on power exchanges registered with the Central Electricity Regulatory Commission, which regulates trading. A national steering committee oversees the market. For companies, the practical touchpoints are the portal, the verification agency and the exchange.

Why it matters beyond the seven sectors

Even businesses outside the notified sectors are affected. Suppliers to obligated entities may be asked for emissions data. Green claims about products and companies must be accurate under the consumer protection guidelines on greenwashing, and should not misdescribe offsets. Companies reporting under SEBI's BRSR should ensure that emissions data is consistent with any CCTS filings. Exporters may face carbon border measures abroad, such as the European Union's carbon border adjustment mechanism, where domestic carbon pricing could be relevant. See ESG and BRSR.

Measurement, reporting and verification

The scheme depends on accurate data. Obligated plants must measure their energy use, fuel consumption, process emissions and production according to the monitoring rules for their sector, and report them in the formats required. Accredited carbon verification agencies then check the data, visit the plant and confirm the emission intensity achieved. Errors in measurement, gaps in records or unexplained changes in production can lead to disputes about the number of certificates earned or owed.

Plants should treat monitoring as a year-round task, not an end-of-year exercise. Meters should be calibrated, fuel purchases reconciled with consumption, and production records kept consistent with what is reported to other authorities, such as the pollution board and tax authorities. Inconsistent data across filings attracts questions from verifiers and regulators.

Prices, trading and planning

Certificate prices will depend on supply and demand in each compliance year: how many plants beat their targets, how many fall short, and how many offset certificates enter the market. Obligated entities need to decide early whether to invest in reductions, such as fuel switching, energy efficiency, waste heat recovery or renewable power, or to plan for buying certificates. Investments that reduce intensity over several years may be cheaper than repeated purchases. Entities expecting surpluses may plan to sell, though they should consider holding certificates for later years where the rules allow banking.

For groups with several plants, coordinating across plants can reduce overall cost. For buyers and sellers, the exchange rules govern trading, and internal approvals and accounting treatment should be settled in advance with finance and tax advisers.

Obligated entity vs offset project

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