AUTHORS: Sanya Darakhshan Kishwar, Assistant Professor, Jindal Global Law School, O.P. Jindal Global University, Sonipat, India; Taskin Akhtar, Student, National University of Study and Research in Law, Ranchi, India; Sarbeswar Mishra, Student, National University of Study and Research in Law, Ranchi, India; and Kritika Vatsa, Student, Jindal Global Law School, O.P. Jindal Global University, Sonipat, India 

Introduction to a Transition

India is building its own carbon market under the Carbon Credit Trading Scheme, 2023 (‘CCTS’). One part of this market is the domestic offset framework run by the Bureau of Energy Efficiency (‘BEE’). It allows Indian project developers to earn carbon credits by using emission-reduction methodologies approved by the regulator. The framework runs in parallel with the international crediting mechanism established under Article 6.4 of the Paris Agreement, 2015.

Article 6.4 gives that mechanism two stated aims: to contribute to the mitigation of greenhouse gas emissions, and to support sustainable development. Its predecessor, the Clean Development Mechanism (‘CDM’) under Article 12 of the Kyoto Protocol, 1997, had a narrower design. It allowed developed countries to count reductions made in developing countries towards their own targets. Article 6.4 goes further. Under Article 6.4(c) and (d), the new mechanism must also help the host country reduce its own emissions and deliver an overall mitigation in global emissions, rather than simply moving reductions from one country’s account to another. A supervisory body now oversees the mechanism and the transition of CDM projects into it.

This article examines one legal risk in India’s version of this system. Every credit project begins with a forecast. A developer uses an approved methodology to estimate how many credits a project will earn, and often sells that volume in advance. But credits are issued only for reductions that are actually measured and verified. If the verified volume falls short of the forecast, the developer cannot deliver on its promise. The question is whether it can then rely on force majeure, or on the doctrine of frustration, to escape liability.

This article argues that it cannot, where the shortfall flows from the methodology the developer chose. Indian law and Indian regulators treat such a shortfall as a risk allocated at the outset, not as an exceptional event arising afterward. The shortfall is a commercial loss to be made good, usually by buying credits in the market. Finally, it proposes standard contract terms that would settle this question in advance.

Issuing Carbon Credits: The Process

A carbon credit is a certificate representing one tonne of carbon dioxide-equivalent emissions that has been avoided, reduced, or removed through a certified project activity. A project developer running such an activity applies a BEE-approved methodology to estimate the number of credits it will generate. The project is then registered, monitored, and checked by an accredited verification agency. Carbon Credit Certificates (‘CCCs’) are issued only for the reductions that are verified.

Developers often sell their expected credits before they are issued. They do so through an offtake agreement, under which they promise to deliver a fixed volume of credits to a buyer. Delivery of credits is, therefore, a contractual promise. Like any other promise, it can be performed, breached, or excused.

Challenge with the process: Force Majeure

There is one main challenge with the above-mentioned process, namely the “methodology for credit estimation”.  Consider a scenario where a company forecasts the volume of carbon credits it expects to generate, adopts a newly approved BEE methodology in good faith, and finds that the actual yield falls short due to climate variability. This is a “shortfall” scenario. In such circumstances, the company may seek to invoke a force majeure clause to excuse its inability to deliver the projected volume of credits. A force majeure clause excuses non-performance where an unforeseeable, uncontrollable event beyond a party’s reasonable control makes performance impossible or impracticable. Given the absence of Indian precedent on this issue, this blog examines whether force majeure applies to shortfalls in carbon-credit delivery.

A Chosen ‘Shortfall’: A Jurisprudential Lens to the Arguments

The relevant legal framework in India regarding carbon-credit delivery shortfall is the Energy Conservation Act, 2001 (‘the Act’) and the Carbon Credit Trading Scheme (‘CCTS’). However, neither Section 14AA of the Energy Conservation Act nor the Carbon Credit Trading Scheme, 2023, treats a shortfall as an exceptional circumstance. Instead, the scheme expects shortfalls and provides a routine cure: buying credits in the market. The Greenhouse Gases Emission Intensity Target Rules, 2025 make this clear for obligated entities, the industrial units that must meet emission-intensity targets. An entity that misses its target must surrender CCCs equal to the shortfall, whether banked earlier or purchased. If it fails to do so, the Central Pollution Control Board may levy environmental compensation equal to twice the average price at which CCCs traded in that compliance year. This article calls this cure a “remedial market purchase”: the entity buys, in the market, the credits it failed to generate.

The same logic applies to an offset developer. If its verified credits fall short of what it promised a buyer, it can often buy CCCs from other sources to make up the gap, unless the contract requires credits from that specific project. The shortfall makes performance more expensive. It does not make performance impossible. This distinction is central to the contract law analysis that follows.

What Contract Law Says: A Chosen Risk Is Not Force Majeure

Indian law addresses unforeseen events through two primary mechanisms. If a contract includes a force majeure clause, this clause, interpreted alongside Section 32 of the Indian Contract Act, 1872, governs the situation by treating the contract as contingent on an uncertain future event. In the absence of such a clause, Section 56 applies, codifying the doctrine of frustration. Section 56 renders a contract void if performance becomes impossible due to an event not contemplated by the parties. The Supreme Court articulated this two-part framework in Energy Watchdog v. CERC (2017). In both scenarios, the event in question must be outside the scope of risks assumed by the affected party.

This framework establishes a critical test for assessing carbon-credit shortfalls. The key question is whether the shortfall resulted from the developer’s voluntary choice of methodology or from an external event, such as a cyclone that destroys the project site. Only the latter scenario may excuse performance under the contract. If the shortfall arises from the developer’s chosen methodology, frustration cannot be claimed, as the difficulty is self-induced. This is why the shortfall in this article’s title is described as self-induced.

The Energy Watchdog decision illustrates how Indian courts apply this test. In that case, power producers agreed to supply electricity at fixed tariffs using coal imported from Indonesia. Following regulatory changes in Indonesia that increased coal prices, the producers claimed force majeure due to sharply rising costs. The Supreme Court rejected this argument, holding that increased costs do not render performance impossible and that the producers had knowingly assumed this risk when submitting their bids. This reasoning followed the precedent set in Alopi Parshad & Sons v. Union of India (1960), which established that a contract is not discharged merely because performance becomes more onerous.  Similarly, a carbon-credit developer experiencing a lower-than-expected yield faces a risk inherent in the chosen methodology and remains obligated to perform, potentially by purchasing credits at a higher cost.

 The Betam Wind Jurisprudence: The Evolving Questions of Jurisprudence

The Central Electricity Regulatory Commission (‘CERC’) applied similar reasoning in June 2026 in Betam Wind Energy Pvt Ltd v. SECI. Betam Wind secured a 200 MW wind power project through a tender conducted by the Solar Energy Corporation of India (SECI), a state-owned entity responsible for procuring renewable power on behalf of the government. Prior to executing the power purchase agreement, Betam Wind sought to be released from its contractual obligations, invoking force majeure. The company cited delays in land acquisition in Gujarat, delays in obtaining defense clearances, financial difficulties faced by its turbine supplier, and the impact of COVID-19.

CERC rejected this plea. Drawing on the precedents set in Alopi Parshad and Energy Watchdog, the Commission held that output-related contingencies are risks already assumed by the contracting party under Section 32 of the Contract Act, which governs contracts contingent on uncertain future events. Accordingly, these risks are considered allocated by the contract itself, rather than constituting unforeseen circumstances that would justify excusing performance.

The order does not concern carbon credits, but its reasoning carries over directly. Betam Wind’s difficulties came from inputs it had chosen and controlled: its site, its approvals, and its supplier. A carbon-credit developer’s shortfall comes from an input it chose in the same way: its methodology. In both cases, the regulator treats the risk as allocated under the contract at the outset, rather than as an exceptional event arising later. A carbon-credit offtake dispute would most likely be decided the same way.

The Existing Market Knowledge About the Risk and the Trap of Disclosure

Carbon-market contracts already reflect this allocation of risk. The International Emissions Trading Association (‘IETA’), a global trade body for carbon-market participants, publishes template Emission Reduction Purchase Agreements. These templates treat force majeure and delivery risk separately. Force majeure covers events beyond either party’s control, such as a wildfire that destroys a forest project. Yield risk is managed through other terms, such as minimum annual delivery volumes with agreed-upon consequences for a shortfall and contributions to a buffer pool of reserve credits. These terms price yield variation into the contract from the outset, rather than excusing it after the fact.

This has a direct consequence for offtake agreements for CCCs in India. Such terms are readily available to Indian parties. Where they could have been used, a court asked to apply frustration to a methodology-driven shortfall would not be filling a gap in the contract. It would be overriding a bargain the parties could have struck and chose not to.

Listed companies face a further problem, one of their own making. Force majeure and frustration both depend on the event being unforeseeable. Yet Indian law requires listed companies to put their foresight on record. Under Regulation 34(2)(f) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the top 1,000 listed companies must publish a Business Responsibility and Sustainability Report, which includes the BRSR Core, a set of key environmental, social, and governance metrics. The report asks them to identify their material environmental risks and explain how they will manage them. Separately, Section 134(3)(n) of the Companies Act, 2013 requires the Board’s Report to describe the company’s risk management policy and the elements of risk the Board has identified.

Suppose a listed company states in these disclosures that it moved to a new BEE methodology as a deliberate strategic step, and names yield variance as a known risk. It has then been placed on record that it foresaw both the change and the chance of a shortfall. That record can be used as evidence against it, and it is hard to reconcile with a later claim that the shortfall was unforeseeable. A company cannot present the same decision as planned and strategic to its investors, and as an unforeseeable shock to a court.

A Practical Proposal to the Issue

Methodology risk in India’s carbon market is therefore not unforeseeable. It can be predicted, measured, identified at approval, and disclosed, all before a project begins. It can be predicted because Indian contract law, from Energy Watchdog to Betam Wind, already treats self-chosen performance risk as a known category of risk. It can be measured because the scheme defines a shortfall as the gap between the credits verified and the credits owed, and sets the cost of curing it at the market purchase price. It is identified at approval because every approved methodology states how reductions will be calculated and monitored. A developer can therefore model, before signing any offtake agreement, how far its actual yield may differ from its forecast. And it is disclosed, because listed companies must already report their material risks and their risk management policies.

Since this predictability already exists, though in scattered form, the better response is not to litigate each shortfall under Section 56. It is to settle the question in advance through standard contract terms. The BEE, or the National Steering Committee for the Indian Carbon Market, should issue model terms for CCC offtake agreements. These terms should do three things. First, they should list the events that count as force majeure, such as natural disasters and failures of the registry or the verification process. Second, they should state that yield variance within a methodology’s known range is a commercial risk borne by the seller. Third, they should fix the remedy for such a shortfall in advance, such as a minimum delivery obligation, replacement credits bought in the market, or an agreed payment. IETA’s templates offer a working model. Clear terms of this kind would give buyers and sellers certainty, and would spare courts from redefining force majeure each time a new methodology dispute reaches them