The carbon credit market of India has entered its terminal development stage, asthe Central Government has notified 1Greenhouse Gas Emission Intensity (GEI) target for additional carbon-intensive sectors under the Carbon Credit Trading Scheme (CCTS). The notification, issued on January 13, 2026, brings petroleum refineries, petrochemicals, textiles & secondary aluminium under the compliance mechanism of the Indian Carbon Market (ICM). GoI is underway to develop a robust carbon credit market that will cater to all the industries falling under the heavy emission category (Scope 1 category of the Greenhouse Gas Protocol).
The carbon credit market of India has entered its terminal development stage, asthe Central Government has notified 1Greenhouse Gas Emission Intensity (GEI) target for additional carbon-intensive sectors under the Carbon Credit Trading Scheme (CCTS). The notification, issued on January 13, 2026, brings petroleum refineries, petrochemicals, textiles & secondary aluminium under the compliance mechanism of the Indian Carbon Market (ICM). GoI is underway to develop a robust carbon credit market that will cater to all the industries falling under the heavy emission category (Scope 1 category of the Greenhouse Gas Protocol). This will ultimately help to achieve Nationally Determined Contributions (NDCs) and to progress towards the goal of net-zero emissions by 2070.
Deliberating on the ways of reducing GHGs, the term “carbon credits” was used for the first time in the Kyoto Protocol of 1997, which refers to a tradable certificate or a permit that allows an industry or firm the right to emit one metric ton of carbon dioxide or other equivalent greenhouse gases. The protocol bound 37 industrialized countries, and the European Community committed to specific, legally binding emission reduction targets, focusing on developed nations because they are largely responsible for high atmospheric emissions. It paved the way for global climate action. While the true genesis of the carbon credits market in India can be attributed to the 2Energy Conservation (Amendment) Bill 2022, the bill only broadly amends the Energy Conservation Act, 2001, to empower the central government to specify a carbon credit trading framework.
India ratified the 3Paris Agreement on Climate Change in 2016, committing to the goal of limiting the global average temperature rise to below 2°C by the end of the century. As part of its first NDCs, India pledged to reduce the greenhouse gas (GHG) emission intensity of its economy by 33-35% by 2030 from 2005 levels. In August 2022, the Indian government revised its NDCs, raising its ambition to a 45% reduction in GHG emission intensity by 2030 from 2005 levels and 50% cumulative electric power from non-fossil sources, with a 2070 net-zero goal.
To achieve the aforesaid targets, the following key focus areas have been identified by the central government: renewable energy, forest cover, and sustainable lifestyles (LiFE - Lifestyle for Environment), and to align with this, necessary amendments were incorporated in the Energy Conservation (Amendment) Act, 2022. One key provision of this amendment includes empowerment of the Central Government to “Specify a Carbon Trading Scheme” under Clause (w) of Section 14. The amendment to the Energy Conservation Act also facilitates the issuance of carbon credit certificates (CCCs) by any agency designated by the Central Government. Each certificate issued will represent one ton of CO2 equivalent (tCO2e) reduction (or removal) from the atmosphere.
To meet the ambitious climate goals of NDCs, a robust National Framework for the Indian Carbon Market (ICM) through a reliable national carbon credit electronic platform is being developed. This framework aims to complement and support various entities by pricing their additional actions towards greenhouse gas (GHG) emission reduction, who are undertaking projects to decarbonize the Indian economy.
Under this provision, the Central Government has notified the Carbon Credit Trading Scheme for regulating the flow of carbon credits in the Indian Carbon Market. This transition from PAT to CCTS moves India from an energy efficiency compliance model to a broader carbon governance architecture, aligning domestic industry with international carbon accounting norms.
The Indian CCTS Framework will have two key mechanisms—the compliance mechanism and the offset mechanism. In the compliance mechanism, obligated entities shall comply with the GHG intensity targets as notified by the Central Government. In the offset mechanism, non-obligated entities can register activities that lead to GHG emission reductions, avoidance, or removals for issuance of carbon credit certificates. The scope of participation may include renewable energy projects, energy efficiency improvements, waste-to-energy initiatives, carbon sequestration activities, afforestation & agroforestry projects, and climate-smart agricultural practices.
In July 2024, the 4government adopted detailed regulations for the compliance mechanism under the CCTS. It will take the form of an intensity-based baseline-and-credit system, initially covering entities from nine energy-intensive industrial sectors, namely aluminium, chlor-alkali processes, cement, fertilizer, iron & steel, pulp & paper, petrochemicals, petroleum refining, and textiles.
The draft notification published in March 2023 for stakeholder comments and was revised in June 2023. The notification established an institutional framework, including the National Steering Committee for the Indian Carbon Market (NSCICM), tasked with overseeing the ICM framework. Additionally, the roles and responsibilities of the administrator, technical committee, and other stakeholders were defined under this.
The Indian carbon market is about to take its final shape as the regulations for the initial nine industries are being framed under the compliance mechanism of CCTS. The ICM framework not only ensures that the heavy emission industries participate through the compliance mechanism but also stimulates the carbon-sequestering entities, like farmland and other green projects, to get involved in the ICM through the offset mechanism. At large, the Indian government is set to build a carbon market, which is a robust, resilient, and regulated network of carbon credit generation, certification, and trading. This network will incentivize emission reductions across energy-intensive sectors while supporting India’s climate commitments and transition toward net-zero emissions by 2070.