India’s Carbon Market Framework

Context:

India is operationalisingits Carbon Credit Trading Scheme (CCTS) and voluntary carbon crediting methodologies under the Energy Conservation (Amendment) Act, 2022, marking a decisive step towards regulated carbon pricing.

Concept of Carbon Pricing

A tool to assign a monetary value to greenhouse gas (GHG) emissions.
Encourages industries to internalise environmental costs and shift to cleaner energy.
Implemented via Carbon Taxes or Emissions Trading Systems (ETS).

India’s Approach – Rate-Based ETS

Unlike cap-based ETS (e.g., EU, Brazil), India’s ETS is rate-based.
Focuses on emission intensity benchmarks instead of absolute emission caps.
Provides flexibility to balance decarbonisation with developmental growth.

Carbon Credit Trading Scheme (CCTS) – 2024

Covers 9 energy-intensive industrial sectors
Credit Certificates awarded for outperforming emission benchmarks.
Two mechanisms:
- Compliance ? Obligated entities in energy-intensive sectors.
- Voluntary ? Renewable energy, green hydrogen, afforestation, etc.

Voluntary Carbon Market (VCM)

Targeted at non-ETS sectors: agriculture, clean cooking, mangrove afforestation.
Mobilisesprivate capital for climate-positive projects.
Supported by 8 approved crediting methodologies (2025), including Green Hydrogen Production and Renewable Energy.

Institutional Architecture

Energy Conservation (Amendment) Act, 2022 ? Legal basis.
Bureau of Energy Efficiency (BEE) ? Nodal agency for implementation.
National Steering Committee for Indian Carbon Market (NSCICM) ? Policy oversight, guidelines, and targets.

Supporting Initiatives

Mission LiFE (2022, COP-27): Lifestyle-based demand-side decarbonisation.
Green Credit Programme (2023): Incentivises plantation on degraded forest land through tradable green credits.
National Green Hydrogen Mission: Backed by carbon crediting methodologies.
Perform, Achieve and Trade (PAT) Scheme: Precursor to CCTS, achieved 15–25% emission intensity reduction.

Comparative Global Context

China: Rate-based ETS (power, cement, steel).
Brazil: Cap-based ETS (law passed 2024).
Indonesia: Rate-based ETS with power sector coverage.
India: Rate-based ETS in regulatory stage ? regional leadership in carbon markets.

Energy Conservation (Amendment) Act, 2022:

Background

Original Energy Conservation Act, 2001 provided the legal framework for energy efficiency in India.
The Amendment Act, 2022 (enforced from January 2023) was introduced to strengthen India’s clean energy transition, carbon market framework, and climate commitments.

Key Provisions

Carbon Credit Trading Scheme (CCTS)
- Provides statutory backing for a domestic carbon market.
- Empowers the central government to issue Carbon Credit Certificates.
- Bureau of Energy Efficiency (BEE) designated as nodal body.
Energy Efficiency Obligations
- Expands obligations to large residential and commercial buildings.
- Introduces energy consumption standards for new classes of consumers.
Promotion of Non-Fossil Energy
- Mandates designated consumers (industries, transport, etc.) to use a minimum share of non-fossil fuel energy (renewables, green hydrogen, biomass).
- Directly aligns with India’s 500 GW non-fossil fuel target by 2030.
Enhanced Role of BEE
- Strengthens Bureau of Energy Efficiency (BEE) for monitoring, certification, and enforcement.
- Expands its mandate beyond efficiency to carbon trading regulation.
Punitive Measures
- Provides for penalties on non-compliance with energy consumption norms or obligations.

Significance

Establishes the legal framework for India’s Carbon Market (ICM).
Aligns domestic law with Net Zero by 2070 commitment.
Promotes green hydrogen economy, renewables, and energy efficiency.
Reduces reliance on fossil fuels and strengthens India’s climate diplomacy.
Encourages private sector participation via tradable certificates and voluntary carbon credits.