Author: Avadhi Jain

India’s Carbon Credit Trading Scheme has moved from policy to implementation. With this article, we intend to give you a comprehensive guide to where we stand as of November 2025, covering timelines, the dual mechanisms operating in India’s carbon markets, current infrastructure in place, what remains speculative versus what’s already reality, and why it all matters.

Where We Stand (November 2025)

Between April and October 2025, the Ministry of Environment, Forest and Climate Change notified emission intensity targets for four sectors on October 8, 2025, covering 282 industrial entities in aluminium, cement, chlor-alkali, and pulp & paper. Draft targets for five additional sectors (iron and steel, fertilizer, petroleum refining, petrochemicals, and textiles) were released in June 2025, covering over 460 additional installations.

The compliance year for these notified sectors started April 2025. Trading operations are expected to commence in mid-2026, according to Power Minister Manohar Lal Khattar’s announcement in February 2025. Around 740 entities across nine energy-intensive sectors will face legally binding emission intensity targets, making this one of the world’s largest emissions trading systems.

The implementation phase of the carbon markets has certain exposed gaps like delayed target notifications, reduced ambition due to bureaucratic lag, and an undefined penalty structure, which we will be discussed in detail later in this article.

Foundational Framework

CCTS Notification Gazetted in June 2023

The Central Government notified the Carbon Credit Trading Scheme for compliance market under the Energy Conservation (Amendment) Act 2022, Section 14(w). This created the statutory foundation for issuing and trading Carbon Credit Certificates.

What It Established:

• Legal authority for carbon trading in India
• Each CCC represents one tonne CO₂ equivalent reduction or removal
• Two-mechanism structure: compliance (mandatory) and offset (voluntary)
• Institutional framework with National Steering Committee, BEE as administrator, GCI as registry, and CERC as trading regulator

Detailed Procedure for Compliance Mechanism published in Oct 2023

Bureau of Energy Efficiency published Detailed Procedure for Compliance Mechanism under CCTS, operationalizing how obligated entities will be covered, how baselines and GEI targets will be set, and how CCCs will be issued and traded.

What It Operationalized:

• Registration process for obligated and non-obligated entities
• Monitoring, Reporting, and Verification (MRV) protocols
• Target-setting methodology using 2023-24 baseline data
• Annual reporting requirements with third-party verification
• Certificate issuance and trading procedures

What’s Confirmed (Updated November 2025)

Operational Governance Structure

National Steering Committee for Indian Carbon Market (NSC-ICM)

• Chair: Secretary, Ministry of Power
• Co-Chair: Secretary, Ministry of Environment, Forest & Climate Change
• Members from 12+ ministries plus state representatives and independent experts
• Function: Policy oversight, target recommendations, credit issuance approval

Bureau of Energy Efficiency (BEE)
BEE is the Market Administrator that identifies sectors for inclusion, develops emission intensity targets, issues Carbon Credit Certificates, accredits verification agencies, manages IT infrastructure. BEE sent out two notifications (April 16, 2025 and June 23, 2025) notifying sectors and companies under CCTS.

Grid Controller of India (GCI)
GCI acts as the Registry Operator. It registers all market participants, tracks CCC ownership and transactions, functions as India’s meta-registry linking to international systems. The GCI will operate the registry for the CCTS. However, the registry is yet to be fully operational as of Nov-2025.

Central Electricity Regulatory Commission (CERC)
CERC acts as the Trading Regulator. It has released a draft notification outlining new regulations for purchasing and selling Carbon Credit Certificates. It also approves power exchanges for CCC trading, oversees market integrity, prevents fraud.

Targets Notified

First Batch (October 2025): Final targets for the first four energy-intensive sectors were officially notified on 8 October 2025. The four sectors now have two-year emission-intensity targets, covering 282 plants nationwide. Reduction ranges are approximately 2.8%–7.06% for aluminium, 4.7%–7.6% for cement, 3.3%–11% for chlor-alkali, and up to 15% for pulp & paper.

Targets are back-loaded: About 40% of required reduction must be achieved in 2025-26, remaining 60% in 2026-27.

Critical Issue: The government notified targets in October 2025, mid-year, forcing a downward revision. The final GHG emission intensity targets were reduced on a pro-rata basis accounting for months lost from the compliance period, which already started in April 2025.  The targets are 16% lower than initially proposed, raising concerns about oversupply of carbon credits.

Second Batch (Pending): Final notifications for the remaining five sectors (iron and steel, fertilizer, petroleum refining, petrochemicals, and textiles) are expected by year-end 2025.

The Dual Mechanism (Now Operational)

1. Compliance Mechanism (Mandatory)

Once all nine energy-intensive sectors are notified, around 740 entities will have legally binding emission intensity targets for the compliance years 2025-26 and 2026-27, using fiscal year 2023-24 as the baseline. The CCTS compliance mechanism is set to apply to petrochemicals, chlor-alkali, and pulp & paper.

How It Works:

• Government sets GHG emission intensity targets in tCO₂e per unit of product
• Baseline established using 2023-2024 emissions data
• New emissions intensity targets announced every three years
• Beat your target, earn Carbon Credit Certificates(“CCCs”)
• Miss your target, purchase CCCs to cover shortfall
• The scheme applies a gate-to-gate approach covering both direct emissions from fuel combustion and industrial processes (Scope 1) and indirect emissions from purchased electricity (Scope 2)

Target Structure: Phase 1 (FY 2025-26) aims a reduction of around 1-3% across all sectors and then in the phase 2 i.e. FY 2026-27 where the reductions are aimed at 2-8%, keeping baseline as a benchmark.

2. Offset Mechanism (Voluntary)

In March 2025, BEE released Version 1 of the Detailed Procedure for the Offset Mechanism. Ministry of Power (MoP) approved eight voluntary methodologies for CCC issuance (e.g., renewables, green hydrogen, mangroves), enabling non-industrial sectors to participate.

Approved Methodologies (March 2025): Renewable energy (including hydro and pumped storage), green hydrogen production (through electrolysis and biomass), industrial energy efficiency, landfill methane recovery, mangrove afforestation and reforestation, renewable energy with storage, offshore wind, and compressed biogas.

Project Requirements: Projects must have a start date no earlier than January 1, 2025. Projects must maintain exclusivity except under the Green Credit Programme.

Compliance Market Timeline:

April 2025: BEE formally launched first notification with entities under specific sectors starting to digitally track emissions

June 2025: The companies complied must submit their Monitoring and Verification (MRV) plans for the CCTS program

October 2025: First four sectors’ targets officially notified (6 months late)

April 2026: The entities after that will have to submit a 5-year action plan along with an annual activity plan for FY26

June 2026: FY26 Accredited Carbon Verification Agency(ACVA)- verified reports (Forms A, B, C, D and E2) need to be submitted by the companies and include their MRV Plan

Mid-2026: Full trading operations are expected to begin

Registration & Trading Infrastructure

Registration Process: On June 6, 2025, BEE announced the opening of registrations for entities to register themselves as non-obligated entities. All entities participating in the Indian Carbon Market must register with the ICM Registry and pay the prescribed fees as per procedures set by the Central Electricity Regulatory Commission.

Trading Mechanism: CCCs must be traded only through power exchanges unless the CERC permits otherwise. There will be two market segments: the compliance market for obligated entities and the offset market for non-obligated entities. Initially, the system will not allow over-the-counter trading; all transactions will take place through regulated exchanges.

Banking and Borrowing: Unlimited banking of CCCs is allowed. Banked CCCs can be sold within ICM or used for future compliance. Borrowing is not allowed.

Price Discovery: CCCs will be traded within a floor price and forbearance price range, as approved by the CERC upon a proposal from the BEE. No floor or forbearance prices announced yet. Analysts expect ₹600-1,200 per tonne in phase 1.

National Designated Authority for Article 6 (August 2025)

The Ministry of Environment, Forest and Climate Change has constituted a new authority, effective August 22, 2025, to oversee the implementation of Article 6 of the Paris Agreement in India. It establishes the institutional framework that will oversee the evaluation, approval, authorization, and regulation of projects and emission reduction units under Article 6 of the Paris Agreement, which governs international cooperation through market and non-market mechanisms.

Composition: The NDA is a 21-member committee chaired by the Secretary of the Environment Ministry, including representatives from External Affairs, Steel, Renewable Energy, Power, and NITI Aayog.

Functions:

• Project approval: Evaluate and authorise projects generating emission reduction units
• National criteria: Recommend activities eligible for trading, aligned with India’s sustainability goals
• Monitoring: Update and revise eligible activities in line with national priorities
• Carbon credit use: Authorise use of Emission Reduction Unit for meeting India’s NDC targets

What’s Still in Speculation (November 2025)

Penalty Structure (Still Undefined)

According to the 2025 draft notification, Environmental Compensation = 2x the average trading price of carbon credits during that year’s trading cycle but the exact enforcement mechanism remains unclear. The Perform, Achieve, and Trade (PAT) scheme set energy efficiency targets for industries and allowed trading of Energy Savings Certificates (ESCerts), but faced weak enforcement as around 50% of ESCerts went unpurchased without penalties, causing oversupply and reduced effectiveness.

Price Discovery Unknowns

Analysts expect ₹600-1,200 per tonne in phase 1, but no floor or forbearance prices announced yet. Without a price collar, CCCs could swing like Renewable Energy Credits (RECs) did in 2016.

Trading Start Date Slippage

While initial MoP roadmaps imagined first trades in April 2025, institutional delays mean mid-2026 is more realistic, according to recent statements by the Power Minister. Some analysts warn of slippage into late 2026 if registry testing drags.

Sectoral Expansion

Power sector inclusion remains unconfirmed. Given that power generation accounts for 40% of India’s GHG emissions, its eventual inclusion is probable but timing uncertain. Phase 2 (2028-30) may expand to shipping and aviation bunkers.

International Linkages

The Indian CCTS is not linked with any other system. No bilateral agreements announced yet. It is also unclear if CCCs will be eligible under Article 6 of Paris Agreement despite National Designated Authority establishment.

Why This Matters:

For India’s Corporate Sector:

Compliance costs are here. Approximately 738-740 companies across nine sectors must now comply. Companies must budget for emission monitoring systems, ACVA fees for annual verification, State Designated Agency fees, potential CCC purchases if targets missed, penalties up to 2x market price if non-compliant.

Competitive dynamics shift. The CCTS compliance mechanism is set to initially cover over 700 million tonnes of CO₂e, placing India among world’s largest emissions trading systems. Early movers with low emission intensity will generate revenue from CCC sales.

Export competitiveness. From 2026 the EU’s CBAM will impose tariffs on carbon-heavy imports. CCTS provides domestic price signal and internationally credible emissions ledger.

For Investors:

Carbon as a cost. Financial models for energy-intensive sectors must now factor in carbon costs at ₹600-1,200/tonne. A cement company’s profitability depends on emission intensity relative to competitors.

Valuation implications. Companies with low emission intensity have an asset. Companies with high emission intensity have a liability. This hasn’t yet been fully priced into valuations.

Green investment opportunities. Eight methodologies approved including green hydrogen, mangrove afforestation, landfill methane recovery. This improves project economics for clean energy investments.

For Project Developers:

New revenue stream. Offset mechanism opens doors for agro-forestry, distributed clean cooking, digital MRV providers, green hydrogen projects. Renewable-energy credits formerly traded in the REC market can migrate once methodologies are approved.

But verification is crucial. Project approval and credit issuance process is far more stringent than CDM, with multiple layers of review from subject matter experts to Technical Committee to NSC-ICM.

What to Watch(2025-2030)

2025 Q4 (NOW, December 2025)

• October 8, 2025: First four sectors’ targets notified (late, reduced ambition)
• Pending: Final targets for remaining five sectors (iron & steel, fertilizer, petroleum, petrochemicals, textiles)
• Pending: ACVA accreditations finalized
• Pending: Power sector inclusion decision

2026 Q1-Q2 (January to June 2026)

• Compliance year 2025-26 ends (March 2026)
• First verified GHG reports due (June 2026)
• Full operationalization of compliance market – First nine PAT sectors transition from PAT scheme, with obligated entities required to meet FY2026 intensity targets and trade Carbon Credit Certificates on power exchanges
• First CCC issuances to over-achievers
• Price discovery begins

2026 Q3-Q4 (July to December 2026)

• First CCC surrenders due for under-performers
• Mandatory MRV reporting (Scope 1 & 2 emissions) with verification; penalties enforced under Energy Conservation Act for non-compliance
• First enforcement tests
• Around 740 entities will have legally binding targets

2027-2030

• Expansion of CCTS to additional sectors and gases; new GEI targets set for FY2028-30, tightening baselines to drive scarcity and trading
• CERC finalizes rules for banking, clearing, price stability mechanisms, and potential OTC trading; integration of voluntary offsets with compliance CCCs, including anti-double-counting safeguards
• Progressive alignment with international standards (e.g., EU CBAM, Article 6 linkages) and broader NDC goals like 500 GW non-fossil capacity by 2030
• Potential cap-hybrid system by 2032, combining intensity with sectoral caps once GDP growth stabilizes

The Bottom Line

Legally, the framework is now operational. Targets are notified (albeit delayed), entities are registered, compliance year is underway, methodologies are approved.

Operationally, critical questions remain. Will penalties actually be enforced, or will CCTS repeat PAT’s compliance failures? Will 16% reduction in target ambition cause credit oversupply and price collapse? Is ACVA capacity sufficient for 740 entities requiring annual verification? When will registry infrastructure be fully operational? Will mid-2026 trading start hold, or will delays continue?

The window to prepare is now. Companies that baseline their FY 2023-24 position, map their least-cost abatement pathways, secure registry and exchange access early, engage ACVAs, and stress-test budgets for carbon price volatility will outmaneuver competitors when markets open in 2026.

The framework exists. The question is whether India’s carbon market will be a compliance exercise or a functioning market depends on execution in the next 18 months.What happens next will be determined by how seriously regulators enforce compliance and how strategically companies prepare.