India's carbon market: the Carbon Credit Trading Scheme
Prelims and MainsCurrent affairs on this: Climate finance, carbon markets and carbon pricing
A carbon market prices a tonne of carbon dioxide by making it something that can be bought and sold. India's market rests on the Energy Conservation (Amendment) Act, 2022, which let the Centre notify the Carbon Credit Trading Scheme in June 2023. The scheme has two parts. The compliance mechanism gives obligated units in energy intensive industries a target for emissions intensity, the emissions per unit of output; a unit that beats its target earns carbon credit certificates, and one that misses must buy them. The offset mechanism lets anyone else register a project that removes or avoids emissions and sell the credits. The Bureau of Energy Efficiency (BEE) administers the scheme, the Grid Controller of India keeps the registry, and the Central Electricity Regulatory Commission regulates trading. It grows out of the Perform, Achieve and Trade (PAT) scheme for energy efficiency, whose certificates it replaces.
The two halves of India's carbon market
| Compliance mechanism | Offset mechanism | |
|---|---|---|
| Who takes part | obligated units in notified energy intensive sectors | any registered project, voluntary |
| What is measured | emissions intensity against a target | emissions removed or avoided by a project |
| What is earned | carbon credit certificates for beating the target; shortfall must be bought | certificates for verified reductions |
| Who buys | units that missed their target | Indian and, under Article 6, foreign buyers |
| Grows out of | PAT energy saving certificates | Clean Development Mechanism style project credits |
- Intensity, not a cap: India's targets are emissions per tonne of product, so output can grow while intensity falls, which is the same logic as its Nationally Determined Contribution (NDC) target.
- Sectors named for the compliance side include iron and steel, cement, aluminium, chlor alkali, fertiliser, pulp and paper, petrochemicals, refineries and textiles, the sectors PAT already covered.
- The offset side is how India's Article 6 trade will work: a credit sold abroad under Article 6.2 needs a corresponding adjustment so it is not counted in India's NDC too, and only activities on MoEFCC's 2023 positive list may be sold.
- One certificate is one tonne of carbon dioxide equivalent; trading is on power exchanges; certificates cannot be banked for ever, so the price depends on how tight the targets are set.
- Why it matters abroad: the European Union's Carbon Border Adjustment Mechanism charges imports for carbon not priced at home, so a credible Indian carbon price is a defence for steel and aluminium exports.
Mains: A carbon market works only if the target bites; India's intensity targets are set to be met, so its market will start as an accounting system and become a price signal only when the targets tighten.
UPSC has asked
- Prelims 2025: Article 6 of the Paris Agreement and carbon markets
See also: Carbon Border Adjustment Mechanism · Sovereign green bonds · Green status for nuclear power · The Paris Agreement: how it works