India makes headway in building carbon market framework: Economic Survey

India has made substantial progress in establishing its carbon market framework, a crucial step towards developing its mitigation strategy, the Economic Survey released on Thursday said.

The government adopted the Carbon Credit Trading Scheme (CCTS) in June 2023, operating through a dual mechanism that incorporates mandatory compliance and voluntary offset approaches.

The compliance mechanism targets energy-intensive industrial sectors through an emission intensity-based baseline-and-credit system, initially covering sectors such as cement, iron and steel, etc.

Entities that exceed their emissions intensity targets earn Carbon Credit Certificates (CCCs), denominated in tonnes of CO equivalent (tCO2e), which they can trade on power exchanges. Those that fall short must buy and surrender equivalent credits.

"This framework leverages the existing Perform, Achieve and Trade (PAT) scheme infrastructure, gradually transitioning it into a fully operational compliance carbon market," the Survey said.

In 2025, the government notified pro-rata Greenhouse Gas Emission Intensity (GEI) targets for four sectors: aluminium, cement, Chlor-Alkali, and Pulp and Paper.

Under the Offset Mechanism, Non-Obligated Entities may voluntarily register projects that reduce, remove, or avoid greenhouse gas emissions to earn CCCs. This mechanism enables mitigation outcomes from entities outside the compliance framework and incentivises climate action in these areas.

In this context, the government has approved a list of 10 sectors -- energy, industries, agriculture, waste handling and disposal, forestry, transport, fugitive emissions, construction, solvent use, and Carbon Capture, Utilisation, & Storage (CCUS) and others -- for the offset mechanism.

GLOBAL CARBON MARKETS

Several major economies have operationalised emissions trading systems (ETS) as marketbased instruments to reduce greenhouse gas emissions, offering useful lessons for countries designing or scaling domestic carbon markets.

The European Union Emissions Trading System, the Korea Emissions Trading Scheme, and the China National ETS represent three of the world's major emissions trading systems, reflecting different design choices and stages of market maturity.