India’s Carbon Credit Trading Scheme (CCTS): Navigating the Green Frontier

Introduction

India is transforming its climate strategy through the Carbon Credit Trading Scheme (CCTS), a significant policy leap designed to decarbonize its heavy industries.

What is the CCTS?

Established under the 2022 amendment to the “Energy Conservation Act, 2001,” the CCTS is India’s formal compliance carbon market. It operates as an intensity-based baseline-and-credit system.

Instead of an absolute cap, it sets emission intensity targets, meaning the limit varies with production output.

The scheme is overseen by the National Steering Committee for the Indian Carbon Market (NSCICM) and administered by the Bureau of Energy Efficiency (BEE).

How Does It Work?

The scheme uses a “gate-to-gate” approach, covering both direct emissions (Scope 1) and indirect emissions from electricity and heat (Scope 2). Entities that outperform their emission intensity targets earn Carbon Credit Certificates (CCCs), which they can sell to entities that fall short of their targets. This creates a financial incentive for industrial units to adopt greener technologies.

Which Sectors Are Impacted?

The CCTS initially focuses on eight energy-intensive sectors (with seven currently having notified targets):

• Aluminium
• Cement
• Chlor-alkali
• Pulp and Paper
• Petrochemicals
• Petroleum Refining
• Textiles

Note: Iron and Steel are included in the regulatory framework but are currently awaiting the notification of intensity targets.

Alignment with EU CBAM

For Indian exporters, the CCTS serves as a strategic bridge to the EU’s Carbon Border Adjustment Mechanism (CBAM).

CBAM levies a carbon tariff on imports to equalize them with EU domestic prices, it often allows for deductions if a carbon price has already been paid in the country of origin.

By maturing the CCTS, India creates an “effectively paid carbon price,” which may allow domestic firms to demonstrate compliance at home and reduce the net financial burden of CBAM tariffs when exporting to the EU.

Read more about the CCTS Framework and the EU CBAM impact on trade.