India now has its own carbon market. The Energy Conservation (Amendment) Act, 2022 gave the central government power to specify a carbon credit trading scheme, and the Carbon Credit Trading Scheme, 2023 set up a framework with two parts: a compliance mechanism, under which entities in notified sectors must meet greenhouse gas emission intensity targets, and an offset mechanism, under which projects that reduce or remove emissions can earn carbon credit certificates. The Bureau of Energy Efficiency administers the scheme, the Grid Controller of India acts as the registry, and trading is to happen on power exchanges.
The compliance mechanism is now real for several industries. Emission intensity targets were notified in October 2025 for aluminium, cement, chlor-alkali, and pulp and paper, and in January 2026 for petroleum refining, petrochemicals and textiles, 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 page explains how the scheme works, what obligated entities must do, how offset projects can participate, and the legal issues in carbon credit contracts, including tax.
हिंदी में सारांश
भारत का अपना कार्बन बाज़ार अब शुरू हो गया है। ऊर्जा संरक्षण (संशोधन) अधिनियम, 2022 और कार्बन क्रेडिट ट्रेडिंग स्कीम, 2023 के तहत चुने हुए उद्योगों (एल्युमिनियम, सीमेंट, क्लोर-अल्कली, पल्प-पेपर, रिफाइनरी, पेट्रोकेमिकल, टेक्सटाइल) को उत्सर्जन तीव्रता के लक्ष्य पूरे करने हैं; लक्ष्य से बेहतर करने वाले कार्बन क्रेडिट सर्टिफिकेट कमाते हैं और कमी वाले खरीदते हैं। इंडियन कार्बन मार्केट पोर्टल 21 मार्च 2026 को शुरू हुआ। ऑफसेट प्रोजेक्ट भी क्रेडिट कमा सकते हैं।
Is this your situation?
- Your plant is in a sector with notified emission intensity targets
- You need to register on the Indian Carbon Market portal
- You expect a shortfall and need to buy credits
- You expect to beat your target and want to sell credits
- You are developing a renewable, forestry or efficiency project for offsets
- You are buying or selling voluntary carbon credits internationally
- You need contracts or tax advice on carbon credit transactions
The carbon market at a glance
Compliance mechanism
Obligated entities in notified sectors must meet emission intensity targets per unit of output.
Offset mechanism
Approved projects outside the compliance sectors can earn credits for reductions or removals.
Carbon credit certificates
Issued for over-achievement of targets or verified offset reductions; one certificate represents one tonne of CO2 equivalent.
Administrator and registry
The Bureau of Energy Efficiency administers; the Grid Controller of India maintains the registry.
Trading
On power exchanges registered with the Central Electricity Regulatory Commission.
Verification
Accredited carbon verification agencies verify emissions and reductions.
How the compliance mechanism works
The scheme does not cap total emissions. Instead, each obligated entity receives a target for greenhouse gas emission intensity, meaning tonnes of CO2 equivalent per unit of product, such as per tonne of cement or aluminium. The targets are set for each entity based on its baseline intensity in 2023-24, with reductions required over the compliance years. At the end of each compliance year, the entity's actual emission intensity is verified by an accredited verification agency.
If the entity performs better than its target, it receives carbon credit certificates for the difference multiplied by its output. If it falls short, it must surrender certificates to cover the shortfall, which it can buy from other entities or, where permitted, from offset projects. Failure to surrender enough certificates attracts penalties under the Energy Conservation Act, including environmental compensation determined by the Central Pollution Control Board in some cases. Obligated entities therefore need reliable monitoring of energy and emissions, an accurate baseline, and a plan for whether to invest in reductions or buy certificates.
The offset mechanism
Entities that are not obligated can participate through the offset mechanism by registering projects that reduce, remove or avoid emissions using methodologies approved under the scheme. Approved methodologies have included areas such as renewable energy, green hydrogen, industrial energy efficiency, landfill methane recovery and mangrove afforestation, with more expected. Projects must be validated and their reductions verified by accredited agencies before certificates are issued.
For project developers, the offset mechanism is a new route to revenue alongside international voluntary standards. The legal questions are similar: who owns the credits, how the project's emission reductions are measured, whether the project could also claim credits elsewhere, and how revenue is shared among landowners, developers and investors. Contracts should settle these at the start.
Voluntary credits and Article 6
Many Indian projects have sold credits on international voluntary markets under standards such as Verra and Gold Standard. With the domestic scheme and the Paris Agreement's Article 6 mechanisms, the government has indicated which activities may be authorised for international transfer, and authorisation affects whether a credit can be counted towards another country's target. Corresponding adjustments, under which India would not count the reduction towards its own targets, apply to authorised transfers. If you sell credits abroad, check whether the activity is in a permitted list for authorisation, whether authorisation is needed for the buyer's purpose, and how the domestic scheme treats the project.
What obligated entities should do
Confirm your obligation
Check whether your plant is notified and what your target is.
Register on the portal
Complete registration on the Indian Carbon Market portal.
Set up monitoring
Measure energy use, emissions and output to the scheme's standards.
Plan reductions or purchases
Decide on efficiency investments, fuel switching or buying certificates.
Get verified
Engage an accredited verification agency at year end.
Surrender or sell
Surrender certificates for any shortfall or sell surplus on the exchange.
Contracts for carbon credits
Carbon credit transactions need careful contracts. Offtake agreements for credits from a project should define the credits clearly, including the standard, vintage and methodology; set out who bears the risk if the project fails to deliver or the credits are not issued; deal with price, payment timing and adjustments; allocate responsibility for registration, verification and any authorisation under Article 6; and include warranties on ownership and the absence of double counting. Agreements between landowners, communities and developers for forestry and agriculture projects should address land rights, benefit sharing and the duration of commitments, which can run for decades.
For obligated entities buying certificates on the exchange, the exchange rules govern the trade, but internal approvals, budgeting and hedging strategies need attention. For group companies, transfers of certificates between entities should be documented properly.
Tax on carbon credits
Income from the transfer of carbon credits is taxed in India under Section 115BBG of the Income-tax Act, 1961 at a concessional rate of 10 per cent on the gross income, without deduction of expenses, as the law stood when the section was introduced. The treatment of credits under the new domestic scheme, including whether certificates surrendered for compliance are deductible as business expenses, raises questions that companies should discuss with their tax advisers. GST treatment of carbon credit transactions has also been debated. Before entering into significant transactions, take tax advice alongside legal advice on the contract.
Time and typical cost
Our fees are agreed in writing at the start, stage by stage. They are not linked to the outcome.
| Stage | Usual time | What it involves |
|---|---|---|
| Obligation review | 1 to 2 weeks | Our fee |
| Portal registration support | Days to weeks | Internal effort; our review |
| Offset project structuring | Weeks to months | Our fee; validation costs |
| Contract drafting | 1 to 3 weeks per agreement | Our fee |
| Verification | At year end | Verification agency's fee |
Sectors and dates at a glance
| Sectors | Targets notified | Compliance years |
|---|---|---|
| Aluminium, cement, chlor-alkali, pulp and paper | October 2025 | 2025-26 and 2026-27 |
| Petroleum refining, petrochemicals, textiles | January 2026 | 2025-26 and 2026-27 |
| Baseline year | 2023-24 | For all notified sectors |
| Indian Carbon Market portal | Launched 21 March 2026 | Registration and records |
Documents usually needed
Obligated entities
- Target notification and baseline data
- Energy and emissions monitoring records
- Production data
Offset projects
- Project design and methodology
- Land and ownership documents
- Validation and verification reports
Transactions
- Offtake and purchase agreements
- Registry and exchange records
Laws that apply
Power to specify the carbon credit trading scheme and penalties.
Compliance and offset mechanisms, administrator, registry and trading.
Emission intensity targets for obligated entities.
Taxation of income from transfer of carbon credits.
How we work
We are a litigation and advisory practice led by Advocate BK Singh, with offices in Dwarka (New Delhi) and Vaishali (Ghaziabad). This is what you can expect:
- Obligations explained: targets, monitoring and surrender.
- Offset projects structured: ownership and benefit sharing.
- Contracts drafted: with delivery and double-counting protections.
- Coordination with tax advisers: before large transactions.
- Written fee terms: agreed stage by stage, never linked to the outcome.
Mistakes we see with carbon credits
- Treating the target as total emissions rather than intensity
- Weak monitoring that fails verification
- Selling the same reductions under two standards
- Contracts that do not say who bears non-delivery risk
- Ignoring the tax position until after the sale
A cement plant's shortfall
Here's a made-up example. A cement plant in Rajasthan expected to miss its 2025-26 intensity target because a waste heat recovery project was delayed.
We reviewed its obligations and the timeline, and advised on buying certificates for the projected shortfall while documenting the project delay. The plant planned to sell surplus certificates in 2026-27 once the project was running.
A solar developer's credits
Here's a second made-up example. A solar developer had registered a project with an international standard years earlier and wanted to register under the domestic offset mechanism.
We reviewed the earlier registration and the domestic rules, identified the risk of double counting, and advised on the sequence of de-registration or the choice of market for future credits, with contracts updated to reflect the decision.
Frequently Asked Questions
What is the Carbon Credit Trading Scheme?
India's carbon market under the Energy Conservation Act, with compliance and offset mechanisms.
Who are obligated entities?
Plants in notified sectors with emission intensity targets.
Which sectors are covered?
Aluminium, cement, chlor-alkali, pulp and paper, refining, petrochemicals and textiles, as notified.
Is it a cap on total emissions?
No, the targets are for emission intensity per unit of output.
What is a carbon credit certificate?
A certificate representing one tonne of CO2 equivalent reduced or removed.
Where are credits traded?
On power exchanges registered with CERC.
Can non-obligated companies earn credits?
Yes, through the offset mechanism with approved methodologies.
What if an obligated entity misses its target?
It must surrender certificates; failure attracts penalties.
Can I sell credits abroad?
Possibly, depending on authorisation rules under Article 6 and the activity.
How is carbon credit income taxed?
Under Section 115BBG at a concessional rate; take tax advice on details.
What is the Indian Carbon Market portal?
The portal launched on 21 March 2026 for the scheme.
Do you draft carbon credit contracts?
Yes, offtake, purchase and project agreements.
Carbon Market Questions?
Send us your target notification or project details. We will set out your position.
This page gives general information about environmental law as it stood when it was last reviewed. It is not legal advice on your case and does not promise any result. Environmental rules, EPR targets, GRAP measures and board procedures change often, so check the current position for your unit or project before acting.
Need help with Carbon Credits and India's Carbon Credit Trading Scheme?
Send us the notice, the order or a few photos. We'll tell you where you stand, which authority or NGT bench deals with it and when the next step is due, in plain words.
