In a significant stride towards achieving its enhanced climate commitments, India has officially launched an ambitious carbon market framework under the Carbon Credit Trading Scheme (CCTS), 2023. Administered by the Bureau of Energy Efficiency (BEE) and the Ministry of Environment, Forest and Climate Change (MoEFCC), this initiative is a transformative step for India’s industrial and economic sectors to transition towards a low-carbon future.
At the heart of the CCTS is the Compliance Mechanism, a structured process that mandates industries, termed as “Obligated Entities,” to achieve specified greenhouse gases (GHG) emission intensity (GEI) reduction targets. Let’s dive deeper into how this system works and why it is a game-changer.
The Indian Carbon Market: A New Era for Emission Reduction
The Indian Carbon Market (ICM) is a government-backed framework designed to mobilize mitigation opportunities and drive industries to reduce, remove, or avoid GHG emissions. The market operates through the trading of Carbon Credit Certificates (CCC), thereby assigning a financial value to emission reductions.
The Compliance Mechanism under the CCTS sets binding emission intensity reduction targets for selected sectors. Obligated Entities must meet these targets within defined compliance years or else offset their emissions by purchasing CCCs from the Indian Carbon Market.
By creating a clear financial incentive for emissions reduction and a financial penalty for non-compliance, the CCTS encourages industries to invest in cleaner technologies, enhance energy efficiency, and adopt sustainable practices.
How the Compliance Mechanism Works
- Setting Emission Intensity Targets:
BEE develops sector-specific GHG emission intensity trajectories and, with the approval of the National Steering Committee for Indian Carbon Market (NSC-ICM), proposes emission reduction targets for obligated Entities. These targets are officially notified by the MoEFCC. - Obligated Entities:
Entities operating in energy-intensive sectors like aluminium, cement, steel, etc., are selected based on their contribution to national GHG emissions. - Monitoring, Reporting, and Verification (MRV):
Obligated Entities must develop comprehensive monitoring plans, collect accurate emissions data, and submit verified reports annually to BEE. - Issuance and Surrender of Carbon Credits:
- Entities that surpass their targets (i.e., achieve lower GEI than the target) are rewarded with Carbon Credit Certificates (CCCs).
- Entities failing to meet their targets must purchase additional Carbon Credit Certificates (CCCs) or surrender banked CCCs to bridge the gap.
5. Banking and Trading:
Surplus carbon credits can be banked for future compliance years or traded in the market, offering flexibility and strategic advantages to high-performing companies.
6. Penalty for Non-Compliance:
Entities failing to surrender the required CCCs will be subjected to Environmental Compensation, calculated as twice the average trading price of carbon credits for that compliance year.
Objectives and Strategic Impact
The primary objectives of the Greenhouse Gases Emission Intensity Target Rules, 2025, include:
- Enabling India to achieve its Nationally Determined Contributions (NDCs) under the Paris Agreement.
- The notification set a benchmark Greenhouse gas Emission Intensity (GEI) targets taking 2023-24 as baseline year.
- Driving the adoption of cutting-edge, sustainable technologies across high-emission sectors.
- Creating a robust market for carbon trading, enhancing transparency, and promoting climate responsibility.
Industries Leading the Way
The initial notification lists a wide range of obligated entities from sectors like Aluminium and Cement. Big names such as Vedanta Limited, Hindalco Industries, Ultratech Cement, and ACC Ltd. are among those pioneering the change. Each entity has been assigned specific Greenhouse Gas Emission Intensity (GEI) targets for the years 2025-26 and 2026-27, with a clear baseline for comparison.
This sectoral and entity-specific approach ensures that the targets are fair, realistic, and tailored according to each industry’s potential for decarbonization
A Future-Ready Climate Initiative
The introduction of the Indian Carbon Market and the CCTS Compliance Mechanism marks a pivotal moment in India’s climate journey.
By combining policy clarity, strict compliance, market-based incentives, and penalties for non-performance, the government has laid down a comprehensive path for industries to become partners in climate action.
This framework not only strengthens India’s position on the global climate map but also opens new economic opportunities in the form of green investments, innovation in low-carbon technologies, and job creation in the sustainability sector.
Disclaimer: Above content does not constitute any legal advice and is only provided for educational purpose.
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