India has made significant progress in decoupling its economic growth from greenhouse gas (GHG) emissions, as stated in the Third National Communication (TNC) submitted to the United Nations Framework Convention on Climate Change (UNFCCC) in December 2023. The report highlights that India has successfully reduced the emission intensity of its GDP over the years. Between 2005 and 2019, the emission intensity of India’s GDP has decreased by 33%, with each period showing steady improvements.
In line with its climate goals, India has been working on developing its carbon market to further reduce emissions. To achieve this, the government proposed amendments to the Energy Conservation Act in 2022, establishing the regulatory framework for the Indian Carbon Market (ICM). The Energy Conservation Amendment Act, 2022, gives the Central Government the power to specify the carbon credit trading scheme, which was formally notified in 2023.
The Carbon Credit Trading Scheme (CCTS) is designed to help India meet its climate commitments under the Paris Agreement. The scheme consists of two main mechanisms: the compliance mechanism and the offset mechanism. The compliance mechanism requires certain entities to reduce their GHG emissions intensity to meet prescribed targets. Entities that achieve reductions beyond the required levels can earn Carbon Credit Certificates. On the other hand, the offset mechanism allows non-obligated entities to register their emission reduction projects and earn certificates.
One of the key features of the CCTS is its link to the Perform Achieve and Trade (PAT) Scheme, launched in 2012. The PAT Scheme aims to improve energy efficiency in energy-intensive industries by setting specific targets for reducing energy consumption. To align with the carbon market, the government has developed a transition plan to move these industries from the PAT scheme to the compliance mechanism under the CCTS. Nine energy-intensive sectors, including Aluminium, Cement, Steel, and Textile, have been identified for this transition.
To ensure the success of the CCTS, the Bureau of Energy Efficiency (BEE) has developed a Measurement, Reporting, and Verification (MRV) framework, which outlines the procedures for monitoring emissions and issuing Carbon Credit Certificates. The MRV guidelines were finalized through consultations with stakeholders and were published in July 2024. A key part of this process is the annual verification of GHG emissions data to ensure transparency and credibility. The BEE will also accredit Carbon Verification Agencies to oversee the verification process.
Overall, the Carbon Credit Trading Scheme is a crucial step in helping India achieve its national climate targets while also providing incentives for industries to reduce their carbon footprint.
