India gears up to embrace carbon market plans to counter climate criticism

India will put the final pieces in place by the end of October to kick start a long-awaited domestic carbon market, and a separate United Nations supervised inter-governmental market for trade in emission credits by January, in an attempt to tame criticism that along with acquiring the image of a poster boy of being the world’s fastest growing major economy, it is also getting the distinction of being the world’s fastest growing major emitter. 

India’s Carbon Credit Trading Scheme (CCTS) and Article 6, the United Nations supervised voluntary carbon trading system, are critical for India to secure technologies available only with the developed world and arrange funds for ambitious emission reduction programmes, which a recent study by Centre for Social and Economic Progress pegged at $467 billion by 2030 to put four carbon-intensive sectors- power, steel, cement and transport — on a low carbon pathway. 

The first phase of India’s compliance regime under CCTS targeting four of India’s high emission sectors — aluminium, cement, chlor alkali, and pulp & paper — and covering 282 units belonging to some of India’s leading conglomerates like Vedanta, Hindalco, UltraTech, and JSW Cement will be officially gazetted by the end of this month, two top government officials told Business Standard on grounds of confidentiality. The second phase covering 253 steel plants, 21 refineries, 11 petchem units and 173 textile units, including companies like Tata Steel, Reliance Industries and Indian Oil among others, will be notified by the end of October, the officials said. 

Emissions targets have been announced till 2027, and a new set of targets and sectors will be finalised in FY27 for the FY28-30 period, an official said. But the challenge lies in creating an efficient market for exchange of credits, he added. 

“Balancing demand and supply (of carbon credits) in the CCTS comes down to setting intensity targets tight enough to create real scarcity,” said Subham Shrivastava, climate finance analyst, South Asia, Institute for Energy Economics and Financial Analysis. Over time, periodic tightening of benchmarks will be essential, and India can also draw from global practice by adopting stability mechanisms that adjust credit supply if prices collapse or spike. 

Companies will submit prorate emission data for FY26 in April to a government body created this August called National Designated Authority (NDA), a 21-member board headed by the environment secretary, with members from external affairs, finance, power, steel, agriculture and MNRE among others. 

The NDA will play a key role in implementing India's carbon trading mechanisms under CCTS and approving projects for international carbon trading under Article 6. The Bureau of Energy Efficiency has called for bids to appoint verifiers for the emissions data submitted by companies, and will appoint them by December, an official said. 

Once the emissions are verified, over a three-month period, the NDA, by September/October 2026 will issue carbon credits to companies that exceeded targets, which will be stored in a registry operated by the Grid Controller of India, an official from BEE said. 

Companies that lag targets set under CCTS will buy these credits or pay a penalty equivalent to twice the value of the credits, the official said. What is unclear, however, is the mechanism available to trade these credits- whether there will be a floor price for carbon and how effective a market stabilisation fund will be to prevent undue volatility in credit prices. Traders are not allowed to participate in the exchange, for now, the official said. The role of financial players is very important for CCTS and the compliance regime market, said Vaibhav Chaturvedi, senior fellow at think tank CEEW. Right now, they are not allowing it, but financial intermediaries players are very important to create a market, he added. 

Indo-Japan carbon credit mechanism 

Separately, India’s first bilateral agreement for supply of carbon credits under Article 6, which was concluded with Japan in August, is progressing fast, with projects expected to be registered by next year under the joint crediting mechanism (JCM), a government official involved with the programme said.  

Article 6 of the Paris Agreement, a legally binding international treaty on climate change, says countries can voluntarily cooperate to meet their climate commitments made in the form of NDCs by trading carbon through country to country arrangements (Article 6.2) or UN-centralised (Article 6.4) carbon credit trading mechanisms. India is in talks with Singapore, Sweden and South Korea for such bilateral cooperation agreements; it recently rejected a draft prepared by Korea, the official said, adding that bilateral agreements take time— the Indo-Japan MoU took over 18 months. 

Such bilateral agreements are critical for Sanket Mantri. A developer, Mantri is the co-founder of Bhumi, a green startup that collects refrigerant gases from cooling units that are trashed, and destroys these life threatening gases in cement kilns by subjecting them to high heat — Japan and other developed nations in Europe are interested in such projects under the JCM mechanism, Mantri said. 

 India will come up with a project information form by January 2026 for companies to begin the process of submitting project plans to the NDA under the JCM with Japan, the official said. These plans will be evaluated by the NDA in 60 days, but there are no set schedules in place for the committee to meet, another official said. 

Once the plans are approved, Indian companies must put together a detailed project design document, which will again be evaluated over two months. Once approved by the NDA, the projects will be registered, which is expected to begin in late 2026, the official said. Subsequently, developers can apply for credits on the basis of emissions reduced from their projects. 

The credits will then be allocated by the NDA to both Japan and India depending on the ratio agreed between the Indian and Japanese companies. These credits will be used by both governments to set off their emissions under climate commitments made to the UN called Nationally Determined Contributions (NDC). Separately, Indian developers can sell these credits within the country to any private player like Tata or Reliance once, before they are retired, a consultant to the environment ministry told Business Standard.  

 India is the 31st country with which Japan has concluded a JCM under Article 6, Kazuhisa Koakutsu, director, Paris Agreement Article 6 implementation partnership center told Business Standard.  An initial agreement is in place and the details are being worked out before companies can start developing projects from 2026, he said. 

Global carbon credit

• India’s Carbon Credit Trading Scheme (CCTS) will cover nine industrial sectors. Carbon credits may be priced at  around $15 a tonne
• China’s emission trading scheme (ETS) began in July 2021, to counter the EU’s carbon tax CBAM programme from  Jan 2026. Credits average $10 a tonne
• EU pioneered its Emissions Trading Scheme (ETS) in April 2005. Carbon  prices are over $70 a tonne