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.

How does it work, step by step?

1. The government picks certain energy-intensive sectors, such as cement, steel, aluminium, chlor-alkali, pulp and paper, and sets each covered factory an emission-intensity target: the maximum carbon dioxide it may release for each tonne of product it makes.
2. At the end of a compliance year, the factory's actual emission intensity is checked against its target.
3. A factory that performed better than its target gets Carbon Credit Certificates (CCCs) for the extra improvement, which it can sell.
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.

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 and 282 industrial units. An amendment effective 13 January 2026 added 4 more sectors to the scheme. 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.

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.
• Carbon Credit Certificate (CCC) vs carbon offset: A CCC under CCTS is issued only for beating a compulsory, government-set target inside a regulated compliance market. A voluntary carbon offset (used in India's separate voluntary carbon market) can come from many kinds of projects, like tree planting, and is not linked to a compulsory target.

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.