Introduction

The Carbon Credits Trading System, 2023 (“CCTS”) marks a turning point in India’s climate policy- a move that links environmental responsibility with measurable economic value. When the Ministry of Power (“MoP”) notified CCTS in June 2023 under the Energy Conservation Act, 2001, it quietly signalled a new era: one where emission efficiency could be traded, monetised and tracked like any other commodity.

The CCTS draws authority from Section 14(w) of the Energy Conservation (Amendment) Act, 2022 [], which allows the Central Government to “specify the carbon credit trading scheme”. At its core, the CCTS establishes a structured market for greenhouse gas (“GHG”) reductions.

Companies that manage to cut their GHG emissions below defined thresholds earn carbon credits in the form of Carbon Credit Certificates (“CCCs”) issued by the Bureau of Energy Efficiency, MoP, with each CCC representing the removal or avoidance of one tonne of carbon dioxide emission or its equivalent. The CCCs can then be sold, traded or used to offset excess GHG emissions, giving tangible financial meaning to sustainability efforts.

By marrying regulation with market logic, the CCTS is designed to push India toward its 2070 Net-Zero target and fulfil its Nationally Determined Contributions (“NDCs”) under the Paris Agreement. For many, including Japanese and European investors eyeing India’s industrial sectors, this move can make India as one of the most dynamic carbon markets to emerge in Asia.

Understanding Ccts: Two Pathways To Participation

The architecture of the CCTS rests on two simple but powerful pillars – the compliance mechanism and the offset mechanism.

  1. Compliance mechanism:
    This applies to energy-intensive industries, identified as “obligated entities”. Such entities must meet specific GHG emission targets for every “compliance year”, starting April 2025. The targets are proposed by the National Steering Committee for Indian Carbon Market (“NSCICM”) and notified by the Central Government, through Ministry of Environment, Forest and Climate Change (“MoEFCC”).

    If an entity beats its target, it earns tradable CCCs. If it falls short, it must purchase additional CCCs to balance the gap. This system rewards efficiency while penalising inaction, creating a self-correcting loop where cleaner operations become the more profitable choice.

    As of now, nine sectors are designated as obligated under the CCTS – aluminium, cement, iron and steel, chlor-alkali, fertilizer, paper & pulp, petrochemical, refinery, and textile.

  2. Offset mechanism:
    For those outside these nine sectors, there’s still a path to participate. The offset mechanism allows non-obligated entities to voluntarily reduce or remove GHG emissions and earn CCCs in return. Start-ups, renewable energy firms, technology innovators and service providers can all enter this voluntary space, supporting India’s broader decarbonisation mission.

    This dual framework is deliberate – it brings together large industries bound by compliance and smaller innovators motivated by opportunity.

    On 8th October 2025, the MoEFCC notified GHG emission intensity targets for aluminium, cement, chlor-alkali and pulp & paper under the Greenhouse Gas Emission Intensity Target Rules, 2025 [], covering 282 entities in India. With this step, India’s carbon market is set to move from blueprint to reality, with full-scale implementation expected by 2026.

How The System Works: A Step-By-Step Overview

The Detailed Procedure for Compliance Mechanism under the Indian Carbon Market (July 2024 Version) provides the operational roadmap:

  1. Registration: All entities participating in the Indian Carbon Market (“ICM”) must register with the ICM Registry and pay the prescribed fees as per procedures set by the Central Electricity Regulatory Commission (“CERC”). Non-obligated entities opting in voluntarily follow the same registration process.
  2. Certificate Issuance: After registration, each entity receives a Certificate of Registration, confirming eligibility to hold and trade CCCs.
  3. Trading Platform: Trading takes place through power exchanges approved by the CERC, ensuring transparency and efficiency.
  4. Trading Procedure: Transactions follow rules issued by the CERC under its Terms and Conditions for Trading of CCCs.

What this essentially means is that emission reductions are no longer just recorded – they are valued, verified and exchanged. This is how environmental compliance evolves into a functioning market.

The Institutional Backbone: Who’s Running The System

A scheme of this scale requires clear governance. The CCTS draws strength from a network of coordinated authorities:

  • Ministry of Power (MoP): Leads implementation, defines emission targets and guides policy for both compliance and voluntary mechanisms.
  • Ministry of Environment, Forest & Climate Change (MoEFCC): Ensures alignment with national climate commitments and notifies sectoral targets.
  • Bureau of Energy Efficiency (BEE): Acts as the market administrator, accrediting verification agencies, maintaining digital infrastructure, and issuing CCCs.
  • Grid Controller of India (GCI): Serves as the central registry, recording all transactions and linking with international systems.
  • Central Electricity Regulatory Commission (CERC): Regulates trading, ensuring fairness and transparency.
  • Accredited Carbon Verification Agency: These independent bodies verify emission data and project performance, adding credibility and environmental integrity to each issued certificate.
  • National Steering Committee for Indian Carbon Market (NSCICM): Provides the policy direction and ensures alignment between ministries, regulators, and market participants.

Why It Matters: The Broader Business Perspective

The CCTS goes beyond being a climate policy – it serves as a clear market signal that low-carbon operations can generate both environmental and economic value. Forward-looking companies can monetise emission reductions, build investor confidence, and enhance their global credibility, particularly through partnerships with Japan under the Joint Crediting Mechanism (JCM) and with other markets such as the EU that emphasise climate transparency.

The Way Forward

The CCTS stands as the cornerstone of India’s emerging carbon economy, transforming sustainability into a measurable and tradable value. For businesses, it opens new opportunities; for regulators, it provides a structured path to achieve climate objectives and for investors, it builds confidence in a transparent and credible market framework.

As India moves steadily toward its Net-Zero vision, the CCTS reflects a decisive transition, from policy intent to practical implementation and from climate commitments to tangible outcomes.

Disclaimer: This article is intended solely for general informational purposes and does not constitute legal or professional advice. The views expressed are those of the authors and are based on publicly available information as of the date of publication.

Authors: Nandika Kaul and Ayush Shrivastava