I. Introduction
Climate change has redefined the global policy landscape, compelling nations to adopt market-based instruments that internalise the cost of emissions. In this backdrop, India has sought to balance its developmental imperatives with climate commitments under the Paris Agreement. The Energy Conservation Act, 2001 (as amended in 2022), together with the Notifications dated 28 June 20231 and 19 December 20232, introduced the Carbon Credit Trading Scheme, 2023 ("CCTS"), establishing the statutory foundation of the Indian Carbon Market ("ICM"). This marks a decisive transition from the earlier efficiency-driven mechanisms, such as the Perform, Achieve, and Trade (PAT) scheme, to a comprehensive national carbon trading system.
Unlike conventional cap-and-trade models premised on absolute emission caps, the Indian framework is centred on reducing emission intensity. This design acknowledges India's growth trajectory, permitting continued industrial expansion while embedding incentives for decarbonisation. By linking compliance obligations with voluntary opportunities, the CCTS is positioned as both a regulatory instrument and a market-driven catalyst for cleaner technology adoption.3
The CCTS establishes a dual mechanism of compliance and voluntary participation, supported by complementary market instruments that link energy efficiency, renewable energy, and carbon reduction. Its institutional framework involves multiple regulatory and administrative bodies ensuring transparency and credibility. Trading takes place on domestic and international platforms, with private actors such as project developers, aggregators, and brokers contributing to liquidity and market depth. The scheme thus represents an inclusive and scalable approach, seeking to align India's industrial growth with its long-term decarbonisation goals.
II. Mechanism of Carbon Trading in India
The CCTS operates on a dual-track model comprising compliance and voluntary participation:
- Compliance Mechanism (Obligated Entities): Energy-intensive industries such as steel, cement, fertilisers, textiles, petroleum refining, and related sectors are assigned emission intensity reduction targets by the government. Entities performing better than their prescribed target earn Carbon Credit Certificates ("CCCs"), while those failing to meet their targets are required to purchase CCCs, thereby ensuring both compliance and generating demand for credits.4
- Offset Mechanism (Non-Obligated Entities): Introduced in December 2023, this mechanism allows voluntary participation by businesses, MSMEs, local authorities, NGOs, and other organisations.5 Such entities may undertake approved climate mitigation projects, such as afforestation, green hydrogen production, and other energy-efficiency initiatives. Verified emission reductions from these projects are converted into CCCs, which may be traded in the market.67
This dual framework is designed to make emission reduction rewarding while imposing a cost on excess emissions. Over time, this structure aims to drive investment into cleaner fuels, energy-efficient technology, and sustainable industrial practices.
III. Market instruments
The ICM integrates multiple market-based instruments that collectively advance energy efficiency, renewable energy generation, and carbon reduction.
a. Carbon Credit Certificates are the primary tradeable unit under the CCTS. Each CCC represents the reduction or avoidance of one metric tonne of carbon dioxide (or equivalent greenhouse gases).8
- Issuance: Section 14AA(1) of the Energy Conservation Act, 2001 (as amended in 2022),9 empowers the Central Government, or any agency authorised by it, to issue CCCs. CCCs are earned either by obligated entities exceeding their targets or by non-obligated entities implementing approved climate mitigation projects.10
- Trading: Once issued, CCCs are recorded in a central registry maintained by the Grid Controller of India and may be traded on CERC-approved power exchanges such as the Indian Electricity Exchange (IEX), Power Exchange of India (PXIL), and Hindustan Power Exchange (HPX)11, as well as on voluntary domestic and international platforms.
- Retirement: Used CCCs must be formally "retired" from the registry to prevent resale or double-counting, ensuring the integrity of climate claims.12
By functioning as compliance and voluntary instruments, CCCs create financial incentives for industries to decarbonise while allowing diverse actors to monetise sustainable practices.
b. Complementary Instruments
While CCCs are the primary unit of trade under the CCTS, other regulatory instruments continue to coexist in India's regulatory landscape.
- Energy Saving Certificates (ESCerts) are issued under Section 14A of the Energy Conservation Act, 2001, to designated consumers that achieve energy savings beyond the notified norms.13 Their trading is governed by the Central Electricity Regulatory Commission (Terms and Conditions for Dealing in Energy Savings Certificates) Regulations, 2016,14 which stipulate that such certificates may only be traded on recognised power exchanges. They provide an incentive structure for promoting energy efficiency.
- Renewable Energy Certificates (RECs), issued under the Electricity Act, 2003 and regulated by the CERC, are generated by entities producing renewable energy.15 They can be purchased by obligated entities to meet renewable purchase obligations or by corporates voluntarily seeking to enhance their sustainability credentials.16
A Comparative Overview of various Market Instruments
| Instrument | Relevant Statute | Unit Represents | Eligible Participants | Trading Platforms |
|---|---|---|---|---|
| CCCs | Energy Conservation Act, 2001and CCTS | 1 tonne CO₂ reduced/avoided | Obligated & non-obligated entities | Power exchanges, voluntary platforms and international platforms |
| ESCerts | Energy Conservation Act, 2001 | 1 unit of energy saved | Designated consumers | Power exchanges |
| RECs | Electricity Act, 2003 | 1 MWh of renewable energy | Renewable generators & obligated entities | Power exchanges |
IV. The Legal Framework
a. Statutory Framework:
The statutory foundation for India's carbon trading regime rests on three pillars:
- The Environment (Protection) Act, 1986, provides an overarching legal support for environmental protection measures.
- The Energy Conservation Act, 2001, empowers the Central Government to establish a national carbon credit trading mechanism.
- The Carbon Credit Trading Scheme, 2023, formulated under the Energy Conservation Act, is designed to operationalise the ICM. It introduces CCCs as the primary tradeable unit and replaces the earlier Perform, Achieve, and Trade (PAT) mechanism with a more comprehensive market-based framework.17
b. Institutional Framework:
The institutional framework for India's carbon trading regime is multi-layered, with distinct responsibilities allocated to different bodies.
- National Steering Committee for the Indian Carbon Market ("NSC-ICM") is the apex policy body, co-chaired by the Secretaries of the Ministry of Power and the Ministry of Environment, Forest and Climate Change. It provides specific strategic guidance, ensures inter-ministerial coordination, and aligns the functioning of the carbon market with India's international climate commitments.
- Bureau of Energy Efficiency ("BEE") serves as the designated administrator under the Ministry of Power.18 Its role includes accrediting carbon verifiers, setting sectoral baselines, and issuing technical guidance.
- Grid Controller of India serves as the registry operator for the carbon market. It maintains the electronic ledger of issuance, transfer, and retirement of the CCCs, thereby ensuring traceability of transactions and eliminating the risk of double-counting.
- Central Electricity Regulatory Commission regulates the trading of CCCs, ESCerts, and RECs on approved exchanges. By supervising trading platforms, it upholds transparency, prevents market manipulation, and maintains the integrity of the trading process.
- Accredited Carbon Verifiers ("ACVs") are third-party entities accredited by the BEE. They are responsible for the measurement, reporting, and verification of emission reductions, providing credibility and assurance to the credits circulating in the market.
This multi-layered institutional structure ensures accountability, transparency, and credibility within the ICM.
V. Trading Platforms and Market Operation
Trading of CCCs under the CCTS takes place on power exchanges approved by CERC, namely the Indian Electricity Exchange (IEX), Power Exchange of India (PXIL), and Hindustan Power Exchange (HPX). These platforms provide transparent and regulated infrastructure for compliance and voluntary trading.
Beyond domestic exchanges, Indian credits are increasingly present on international voluntary platforms, such as Xpansiv, AirCarbon Exchange (ACX), and Climate Impact X (CIX), which offer global exposure to Indian project developers. Emerging domestic voluntary platforms such as RenewCred, OffsetFarm, Terano, and Sundance are experimenting with innovative trading mechanisms like blockchain-based fractional ownership of carbon credits.
Carbon trading in India differs from conventional financial securities trading because it is not anonymous. Each transaction is recorded in a central registry operated by the Grid Controller of India, ensuring full traceability of credits to participating entities. Depending on the platform, transactions may involve direct corporate buyers or intermediaries acting as custodians, similar to stockbrokers in capital markets. Once used, credits must be formally "retired" from the registry, permanently removing them from circulation and preventing resale or double claiming. Contractual trading of credits, particularly in the voluntary market, is also permissible under Indian law, subject to taxation norms and safeguards against duplication.19
VI. Conclusion
The Carbon Credit Trading Scheme represents a pivotal shift in India's climate policy framework. By introducing a regulated market for emission reductions, it seeks to transform environmental responsibility into economic opportunity. With its dual mechanism of compliance and voluntary participation, the scheme creates incentives for industries to decarbonise, while offering smaller players a chance to monetise sustainable practices.
The coming years will be decisive, as compliance trading is expected to commence by 2025–26. It will test the credibility of verification systems, the robustness of enforcement, and India's ability to integrate seamlessly with the global carbon markets. The broad scope of participation, from large energy-intensive industries to MSMEs, local authorities, and global project developers, ensures that the ICM is both inclusive and scalable.
For Indian businesses, participation in this market is more than a regulatory obligation; it is a strategic opportunity to access new revenue streams, enhance global competitiveness, and contribute meaningfully to India's transition towards a low-carbon economy.
Footnotes
1. Carbon Credit Trading Scheme, 2023, Gazette of India, pt. II sec. 3(i) (June 28, 2023).
2. Notification amending the Carbon Credit Trading Scheme, 2023, Gazette of India, pt. II sec. 3(i) (Dec. 19, 2023).
3. Press Information Bureau, Government of India, Cabinet Approves Introduction of Carbon Credit Trading Scheme in India (June 28, 2023), https://pib.gov.in/PressNoteDetails.aspx?NoteId=154721.
4. Press Information Bureau, Government of India, Turning Climate Commitments into Action: India's Carbon Offset Plan Hits the Ground (Mar. 28, 2025), https://pib.gov.in/PressReleasePage.aspx?PRID=2116421.
5. Ministry of Power, Notification on Offset Mechanism (Dec. 2023).
6. Dhriti Jain, CCTS explained: Everything you need to know about India's new Carbon Credit Trading Scheme, The Sustainability Cloud (Aug. 4, 2025), https://www.thesustainabilitycloud.com/blog/carbon-credit-trading-scheme-ccts/.
7. Bureau of Energy Efficiency, Detailed Procedure for Offset Mechanism under the Carbon Credit Trading Scheme (version 1.0 effective Mar. 27, 2025), https://beeindia.gov.in/sites/default/files/Detailed%20Procedure%20for%20Offset%20Mechanism_CCTS.pdf.
8. Indian Carbon Coalition, Carbon Credit Markets, https://www.indiancarbon.org/the-carbon-credit-market/.
9. Energy Conservation Act, 2001, § 14AA(1).
10. Supra note 4.
11. Central Electricity Regulatory Commission, Order in Suo-Motu Petition No. 8/SM/2024 (Apr. 28, 2025), https://www.cercind.gov.in/2025/orders/8-SM-2024.pdf.
12. Supra note 7.
13. Energy Conservation Act, No. 52 of 2001, § 14A (India).
14. Central Electricity Regulatory Commission, Terms and Conditions for Dealing in Energy Savings Certificates Regulations, 2016, Gazette of India, pt. III sec. 4.
15. Electricity Act, No. 36 of 2003, § 66 (India).
16. Id.
17. Carbon Credit Trading Scheme, 2023, supra note 2.
18. Power Exchange India Ltd., Energy Saving Certificates (ESCerts), https://powerexindia.in/Components/Market/modals/Escert.html.
19. Energy Conservation Act, 2001, supra note 1, § 14(w).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
