Written by: Shashank Pandey
On 27 February 2026, the Central Electricity Regulatory Commission (CERC) issued a consequential piece of delegated legislation in India’s nascent carbon market journey. The Central Electricity Regulatory Commission (Terms and Conditions for Purchase and Sale of Carbon Credit Certificates) Regulations, 2026 which operationalises the trading architecture for Carbon Credit Certificates (CCCs) under the Carbon Credit Trading Scheme, 2023 (CCTS). This piece offers a granular legal reading of these regulations, interrogating their design choices, institutional logic, and the silences that will inevitably demand clarification.
I. Understanding the Jurisdictional Claim
The CERC’s authority to regulate carbon credit trading is not obvious on its face. The Commission is a creature of the Electricity Act, 2003, a statute whose original mandate was to regulate electricity generation, transmission, distribution, and trading. Carbon credit certificates, by contrast, are instruments conceived under the Energy Conservation (Amendment) Act, 2022, and operationalised through the CCTS 2023, notified under the Environment Protection Act, 1986.
The preamble to these Regulations asserts jurisdiction under Section 178(1) and Section 178(2)(y) of the Electricity Act, 2003, the latter being a residuary clause permitting the Commission to regulate “such other matters as may be prescribed.” Crucially, the preamble also relies on Section 66 of the Act, which mandates the Commission to “endeavour to promote the development of a market” for electricity, including measures to introduce trading.
This is a significant jurisdictional stretch, and a legally defensible one. The CCTS 2023 itself designates CERC as the market regulator for carbon credit trading on Power Exchanges, effectively parasitising the institutional infrastructure of electricity market regulation for a climate instrument. This dual statutory anchoring, one in the Electricity Act and the other in the Carbon Credit Trading Scheme, creates an unusual and architecturally interesting hybrid jurisdiction. Practitioners and entities operating in this space must remain alive to the possibility of jurisdictional disputes, particularly in matters where the CERC’s mandate intersects with the Bureau of Energy Efficiency (BEE), the Environment Ministry, or future Green Credit Programme overlaps.
II. A Triangulated Institutional Structure
The Regulations create a triangulated institutional structure comprising three core actors:
1. CERC: The Market Regulator
The Commission occupies the apex regulatory position: approving Business Rules and Bye-Laws of Power Exchanges, setting floor and forbearance prices (Regulation 11), exercising market oversight (Regulation 13), and issuing directions in cases of price volatility or dealing anomalies. Importantly, the Commission retains broad powers of relaxation (Regulation 14) and direction (Regulation 15), which grant it significant discretion to respond to market developments that the current framework has not anticipated.
2. Bureau of Energy Efficiency (BEE): The Administrator
The BEE, as Administrator, is entrusted with the substantive management of the CCC ecosystem. Its functions under Regulation 6 are extensive: formulating detailed transaction procedures (after public consultation and Commission approval), monitoring market transparency, disseminating market information, coordinating between Power Exchanges and the Registry, and ensuring compliance under both the EP Act and EC Act.
Notably, Regulation 6(2)(a) requires BEE to develop detailed procedural rules ‘in consultation with the Registry and subject to Commission approval‘. This tripartite procedural mechanism of Administrator, Registry, and Regulator is sound from a checks-and-balances perspective, but raises questions about decision-making velocity in a market instrument where timing is crucial.
3. Grid Controller of India (GCI): The Registry
Regulation 5 designates the Grid Controller of India as the Registry for CCC exchange. This is a consequential design choice. The GCI, a Section 8 company under the Companies Act established by the Ministry of Power, already functions as the load despatch entity for the national grid. Its appointment as Registry consolidates power sector infrastructure as the backbone of India’s carbon market, leveraging existing technological and institutional capacity.
The Registry’s functions under these Regulations are primarily custodial and corrective: maintaining CCC accounts, cross-checking sale bids against available balances (Regulation 9(8)), updating accounts post-transaction, and publishing defaulter lists (Regulation 9(9)). However, the Regulations do not specify detailed data-sharing protocols between GCI and BEE, leaving this to the “detailed procedure” that BEE is expected to formulate, a gap with operational significance.
III. Two Segments, One Exchange Architecture
Compliance Market and Offset Market
Regulation 9(2) creates two distinct market segments: the Compliance Market for Obligated Entities and the Offset Market for Non-Obligated Entities. This bifurcation mirrors the structure envisaged in the CCTS 2023 and tracks design elements familiar from established trading systems like the EU Emissions Trading System (EU ETS), which similarly distinguishes between allowances (compliance-grade) and project-based offset credits.
The legal significance of this bifurcation is considerable. It determines eligibility for participation, the regulatory treatment of certificates, and, importantly, their fungibility. The Regulations do not explicitly address whether CCCs from the Offset Market can be used by Obligated Entities for compliance purposes, or whether cross-segment transfers are permissible. This is a foundational question of market design that must be resolved in the detailed procedure that BEE is expected to formulate.
Power Exchanges as the Primary Venue
Regulation 9(1) establishes an exclusivity principle: CCCs shall be dealt with only through Power Exchanges, unless the Commission specifically permits otherwise by order. This is a deliberate policy choice. India’s existing Power Exchanges, the India Energy Exchange (IEX) and the Power Exchange India Limited (PXIL), both regulated by CERC under the Power Market Regulations, 2021, offer a ready-made, regulated trading infrastructure with established compliance frameworks, dispute-resolution mechanisms, and market surveillance capabilities.
The phrase “or through such other mode as may be permitted by the Commission” in Regulations 3 and 4 preserves the Commission’s flexibility to expand the market infrastructure, potentially to Over-the-Counter (OTC) platforms or bilateral registrations in the future. This optionality is legally significant as it allows market evolution without requiring fresh legislative intervention.
Transaction Frequency
Regulation 9(4) provides for monthly transaction frequency, or “such periodicity” as the Commission may approve. Monthly trading cycles are conservative relative to the real-time or daily clearing mechanisms in electricity markets. This design choice prioritises price stability and liquidity aggregation over trading flexibility, which is defensible given the nascent state of the market but may need revisiting as market depth improves.
IV. The Floor-Forbearance Corridor of Pricing
The pricing framework under Regulation 11 deserves particular attention from a climate finance perspective. The Regulations establish a price collar mechanism: CCCs shall be exchanged within a floor price (minimum) and a forbearance price (maximum), to be approved by the Commission on a proposal from BEE.
This price corridor model is both a market design tool and a political economy instrument. It protects sellers against price collapse, a persistent concern in carbon markets globally, where oversupply and weak demand have historically driven prices to near-zero levels (as happened in Phase I of the EU ETS). Simultaneously, the forbearance price protects obligated entities from price spikes that could make compliance prohibitively expensive, reducing the political risk of the scheme.
However, the Regulations are silent on the methodology by which BEE will propose floor and forbearance prices. Will it be cost-of-abatement based? Will it reference international carbon price benchmarks? Will it use a marginal abatement cost curve for the Indian industry? This methodological void is consequential; the credibility of India’s carbon market will be substantially determined by whether price levels are set to drive genuine emission reductions, rather than neutralise the economic incentive for decarbonisation.
Regulation 11(4) additionally empowers the Commission to issue emergency directions in cases of abnormal price movements, sudden volatility, or unusual dealing patterns. This provision functions as a circuit-breaker, an emergency market stabilisation tool analogous to the Commission’s existing powers in the electricity market context. Its breadth is appropriately wide, but the absence of procedural safeguards (timelines for Commission action, notice requirements, grounds for review) leaves it open to discretionary exercise without adequate accountability mechanisms.
V. Enforcement and Default Management
Regulation 9(7)–(9) establish the default management framework, and they represent one of the more operationally detailed provisions in the Regulations.
Sub-regulation 9(7) imposes a hard cap: no entity may place sale bids exceeding the total CCCs held in its Registry Account. This prevents the risk of “naked short-selling” of carbon credits, a known vulnerability in poorly designed carbon markets. Sub-regulation 9(8) tasks the Registry with cross-verifying cumulative bids across all Power Exchanges, and any breach renders submitted bids void. The mechanism is structurally sound, though it raises a practical question: what happens to contracts that were matched before the Registry detected the breach? The Regulations do not address this, and the detailed procedure will need to provide for it.
Sub-regulation 9(9) imposes a graduated sanction: three or more default instances in a quarter trigger a six-month suspension from CCC dealings. The provision explicitly states that this is “notwithstanding any penalty due to be imposed” under the EC Act, meaning that regulatory sanctions under CERC and penal consequences under theBEE/EC Act can run concurrently. This is sound from an enforcement integrity perspective, but the interaction between CERC-level trading suspensions and BEE-level compliance determinations has not been legally mapped in the Regulations, creating a potential overlap in institutional action.
The default publication requirement of monthly publication by the Registry serves a market transparency and reputational sanction function that, in principle, should complement the formal penalty regime. However, in Indian regulatory practice, publication mechanisms without accompanying redressal procedures can raise concerns about natural justice. Entities that dispute their default designation will need a clear adjudicatory pathway, which is not currently provided.
VI. Validity and Lifecycle of CCCs
Regulation 7 addresses the value and validity of CCCs by cross-referencing the CCTS 2023 and its associated detailed procedures. One CCC equals one tonne of CO2 equivalent reduced, removed, or avoided (Regulation 11(1)) which is the standard international unit.
The validity question is particularly important for market participants. Carbon credits with limited validity windows create “banking” pressures , entities holding credits approaching expiry may engage in distress selling, depressing prices. Regulation 10 provides for banking and surrender in accordance with the detailed procedures to be developed under CCTS 2023. The Regulations themselves do not specify validity periods, which is architecturally sensible, it allows validity rules to be updated without amending the Regulations, but it defers a commercially critical question.
VII. Silences and Structural Gaps
No regulatory instrument is complete on its face, and the CERC CCC Regulations 2026 are no exception. The following structural gaps warrant attention:
1. Grievance Redressal: There is no provision for dispute resolution between market participants or between entities and the Registry/Administrator. The Commission’s general powers under Section 79 of the Electricity Act may provide a backstop, but a dedicated grievance mechanism appropriate to carbon market operations is conspicuously absent.
2. International Linkage and Article 6: As India positions itself for Article 6 of the Paris Agreement, particularly voluntary cooperation under Article 6.2 and the centralised mechanism under Article 6.4, these Regulations make no reference to how CCCs traded domestically relate to Internationally Transferred Mitigation Outcomes (ITMOs). The corresponding adjustment question, whether domestic CCC transfers will result in NDC adjustments, has massive implications for the environmental integrity of the market and for the pricing of export-quality credits versus domestic compliance credits.
3. Capacity of Grid Controller of India: While the GCI’s appointment as Registry leverages existing infrastructure, its institutional capacity for the custodial and surveillance functions envisaged under Regulation 9 has not been publicly assessed. The Registry function for a carbon market requires specialised software infrastructure, account management protocols, and cybersecurity standards distinct from grid dispatch operations.
Closing Remarks
Viewed against the broader canvas of India’s climate policy, these Regulations represent a carefully managed step in a multi-layered market architecture. The CCTS 2023, the Green Credit Programme under the Environment Protection Act, the Perform Achieve and Trade (PAT) scheme under the EC Act, and now these trading regulations together constitute an overlapping and sometimes inconsistent set of instruments, each with distinct coverage, units, and institutional parents.
The risk of regulatory fragmentation is real. An industrial entity that is simultaneously an Obligated Entity under CCTS, a PAT target under the EC Act, and a potential green credit generator under the MoEFCC’s Green Credit Programme faces a compliance environment of extraordinary complexity, with no unified disclosure, reporting, or trading framework. These Regulations, for all their operational merit, do not address, and were not designed to address, this systemic incoherence.
What they do achieve, however, is significant: they bring the trading layer of India’s carbon market under a regulated, transparent exchange mechanism with defined pricing guardrails, institutional accountability, and default management discipline. For a market that has spent years deliberating design, this is material progress.
The limitations are equally characteristic of India’s regulatory style: heavy reliance on cross-referenced instruments that are yet to be finalised, absence of social and ecological rights guardrails, silence on the international architecture, and insufficient attention to procedural fairness in enforcement. These are not design failures unique to this instrument but they reflect the systemic tendency of Indian climate regulation to prioritise the market architecture while deferring the equity and integrity architecture to a later date that often does not arrive.
About the Author: Shashank Pandey is a Lawyer and Lead of the Climate Finance Vertical at CLII
Climate and Law Initiative India 
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