Carbon Credit Trading Scheme (CCTS), India

The Carbon Credit Trading Scheme, or CCTS, is India's own domestic carbon market. In simple words, it is a system where big polluting factories are told how much carbon dioxide they are allowed to release for every unit of goods they make. If a factory pollutes less than its limit, it earns a certificate it can sell.

If it pollutes more, it must buy certificates from others or pay a fine. This way, the total pollution across the industry comes down over time, and cleaner factories are rewarded with extra income.

Why does it exist?

Factories that make steel, cement, aluminium and similar goods use huge amounts of energy and release large amounts of greenhouse gases. Simply ordering them to pollute less does not tell them how to do it cheaply. A market-based system is different: it lets the factories that can cut pollution cheaply do more of the cutting, and sell their extra "room to pollute less" to factories that find it harder to cut.

This brings down total pollution at the lowest overall cost to the economy. India also needed its own carbon market so that money paid for carbon reduction stays inside the country, instead of Indian companies only paying carbon charges to other countries like under the EU's CBAM.

Where did it come from?

India already had an older scheme called Perform, Achieve and Trade (PAT), which gave energy-saving certificates to factories that used energy more efficiently, but it measured energy savings, not carbon dioxide directly. Parliament passed the Energy Conservation (Amendment) Act, 2022, which changed the Energy Conservation Act, 1938 (commonly called by its 2001 version, the Energy Conservation Act, 2001) to allow a full carbon market.

This amendment inserted a new clause, Section 14(w), which lets the central government, working with the Bureau of Energy Efficiency (BEE), notify a carbon credit trading scheme. Using this power, the Ministry of Power notified the CCTS on 28 June 2023. Section 14AA of the amended Act allows the government to issue Carbon Credit Certificates to entities that meet or beat their targets. An amendment to the scheme on 19 December 2023 added a second part, the offset mechanism, explained below.

How does it work, step by step?

1. The government picks certain energy-intensive sectors, such as aluminium, cement, chlor-alkali, pulp and paper, petroleum refining and textiles, and sets each covered factory an emission-intensity target: the maximum carbon dioxide it may release for each tonne of product it makes. The starting point (base year) is 2023-24, and targets are set for 2025-26 and 2026-27.
2. At the end of a compliance year, the factory's actual emission intensity is checked against its target. Each factory files its report by 31 July after the year ends. The first such date was 31 July 2026, for the 2025-26 compliance year.
3. A factory that performed better than its target gets Carbon Credit Certificates (CCCs) for the extra improvement, which it can sell. One CCC equals one tonne of carbon dioxide equivalent (tCO2e) cut, removed or avoided.
4. A factory that missed its target must buy CCCs from the market to cover the gap, or pay a penalty equal to twice the average certificate price for that year, paid to the Central Pollution Control Board (CPCB) within 90 days.
5. The Grid Controller of India (the same body that manages the country's electricity grid) runs the registry that records who owns which certificates, and the Central Electricity Regulatory Commission (CERC) regulates the actual trading of certificates, much like it regulates power trading. Certificates are bought and sold on India's power exchanges (the same electronic markets where electricity is traded). CERC notified the rules for this trading, the Terms and Conditions for Purchase and Sale of Carbon Credit Certificates Regulations, 2026, in February 2026. Under them, trading happens once a month unless CERC allows a different schedule.

The two parts: compliance and offset

The steps above are the compliance mechanism: compulsory targets for the factories the scheme covers, called obligated entities. The second part is the offset mechanism, which is voluntary. Here, anyone not covered by a target can register a project that cuts, removes or avoids greenhouse gases, such as a renewable energy plant, green hydrogen, landfill methane capture or mangrove planting.

If the cut is checked and confirmed by an accredited verifier, the project also earns CCCs. BEE published the detailed rules for the offset mechanism in March 2025.

Who runs the CCTS?

A National Steering Committee for the Indian Carbon Market, chaired by the Secretary of the Ministry of Power and co-chaired by the Secretary of the Ministry of Environment, Forest and Climate Change, gives overall direction. The Bureau of Energy Efficiency acts as the administrator of the scheme, deciding sector targets and checking compliance. This mirrors how BEE already ran the older PAT scheme, so the same institutional experience carries over.

India's position and coverage so far

The government began with detailed emission-intensity rules for a first batch of sectors: these took effect on 8 October 2025 and covered 4 sectors (aluminium, cement, chlor-alkali, and pulp and paper) and 282 industrial units. These target rules are issued by the Ministry of Environment, Forest and Climate Change under the Environment (Protection) Act, 1986.

An amendment effective 13 January 2026 added 4 more sectors to the scheme: petroleum refining, petrochemicals, textiles and secondary aluminium (aluminium made from scrap). This added 208 units, so about 490 obligated entities were covered as of January 2026. Because secondary aluminium is part of the aluminium sector, official counts describe this as seven sectors.

Rules for the steel sector, one of the sectors most affected by the EU's CBAM, were still being finalised as of mid-2026. Early trading estimates put the price of an Indian carbon credit at around 11 to 15 US dollars per tonne, much lower than the roughly 75 euros per tonne that the EU's own carbon price was near in the second quarter of 2026.

In September 2026, the United Kingdom formally recognised India's CCTS, an early step toward India's carbon credits being accepted for adjustment under other countries' carbon border rules as well. The UK added the CCTS to its list of qualifying overseas carbon pricing schemes under its own carbon border tax, the UK CBAM, which starts on 1 January 2027.

This means a UK importer of Indian goods can lower its UK CBAM bill, but only by the carbon price actually paid in India for those goods, and only with emissions data checked under UK rules. Emissions covered by free allowances (permission to pollute given at no cost) get no relief, because no carbon price was paid on them. As of October 2026, the EU had not given the CCTS a similar recognition under its CBAM.

Commonly confused concepts

• CCTS vs PAT scheme: PAT (Perform, Achieve, Trade) measured and rewarded energy savings in specific large plants. CCTS measures and prices carbon dioxide emissions directly, and is meant to eventually cover the wider economy, not just the old PAT sectors.
• CCTS vs EU ETS: Both are "cap and trade" carbon markets, but the EU ETS caps total emissions and issues a fixed number of allowances, while CCTS (in its current compliance form) sets an emission-intensity target per unit of output, not one fixed nationwide cap.
• Compliance credits vs offset credits: Under the compliance mechanism, a CCC is earned only by beating a compulsory, government-set target. Under the offset mechanism, a CCC is earned by a voluntary project (like renewable energy or mangrove planting) that is not linked to any compulsory target. Both kinds of CCC are issued and recorded inside the same Indian carbon market.
• CCTS vs Paris Agreement Article 6: CCTS is a market inside India, and its credits are meant for use inside India. Article 6 of the Paris Agreement deals with carbon credits traded between countries. An Indian credit would need a "corresponding adjustment" (India removing it from its own climate count so it is not counted twice) only if India authorised it for use abroad.

Issues, criticism and the way forward

Industry groups have asked for CCTS carbon prices to be recognised by the EU so that Indian companies do not end up paying twice, once under CCTS and again under CBAM, for the same tonne of carbon. Environmental economists point out that an emission-intensity target (per tonne of product) does not automatically cap total national emissions, since total pollution can still rise if production volumes grow fast, unlike an absolute cap-and-trade system.

There are also concerns about whether India has enough independent verification capacity to check thousands of factories' emissions data accurately, and about keeping the scheme simple enough for smaller industrial units to comply with. The government's stated way forward is to expand CCTS to more sectors, tighten targets over time, and use bilateral recognition (such as the UK's move) to link India's carbon price with international carbon markets.

Concepts to Know

• Emission intensity: How much greenhouse gas is released for each unit of something produced, for example tonnes of carbon dioxide per tonne of steel. It is different from total emissions, which is the overall amount a factory releases regardless of how much it produces.
• Cap and trade: A system where a government sets a total limit ("cap") on pollution and lets companies buy and sell permission to pollute ("trade") within that limit.
• Carbon Credit Certificate (CCC): A tradable paper (in practice, an electronic record) that proves a company has reduced its emission intensity by a certain amount, which it can sell to another company that has not met its target.
• Bureau of Energy Efficiency (BEE): A government body under the Ministry of Power that promotes energy efficiency in India and now also administers the carbon market.
• Obligated entity: A factory or plant that the government has put under a compulsory emission-intensity target in the CCTS.
• Offset: A cut in greenhouse gases made by a project outside the compulsory targets, which earns a credit that someone else can use to make up for their own emissions.
• Carbon dioxide equivalent (CO2e): A common unit for all greenhouse gases. Gases like methane trap more heat than carbon dioxide, so each is converted into the amount of carbon dioxide that would cause the same warming.