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A bit of a blur over India’s new carbon credit plan

March 17, 2026 4 min read Environment & Ecology Economics GS2 GS3
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What Happened

  • India's Carbon Credit Trading Scheme (CCTS), notified in June 2023 under the Energy Conservation (Amendment) Act 2022, has drawn criticism for lacking strategic coherence between its two core pillars: the compliance mechanism (targeting industrial "smokestack" emitters) and the offset mechanism (covering "soil"-based sequestration such as agriculture and forestry).
  • A recent analysis argues that the two pillars require distinct policy focus — compliance entities face mandatory emission intensity targets, while offset projects (farms, forests) require different incentive structures, monitoring methodologies, and price signals.
  • The compliance mechanism mandates that nine energy-intensive sectors — steel, aluminium, cement, fertilizers, petroleum refineries, pulp and paper, and textiles — meet GHG emission intensity targets starting FY 2025-26, replacing the older Perform, Achieve and Trade (PAT) scheme.
  • The offset mechanism, added in December 2023, allows non-obligated entities such as farmers and forest managers to earn tradable Carbon Credit Certificates (CCCs) through activities that reduce or remove emissions.
  • Analysts warn that without separate regulatory clarity, price discovery in India's carbon market will remain distorted, undermining India's credibility under Article 6 of the Paris Agreement.

Static Topic Bridges

Indian Carbon Market (ICM) and the CCTS

The Indian Carbon Market (ICM) is the overarching institutional framework established to enable carbon credit trading in India. It rests on two mechanisms under the CCTS: the compliance mechanism, where designated "obligated entities" in energy-intensive industries must meet sector-specific GHG emission intensity targets, and the offset mechanism, which allows voluntary projects across energy, industry, agriculture, forestry, and waste to generate tradable carbon credits. The Bureau of Energy Efficiency (BEE) under the Ministry of Power administers the scheme. The Central Electricity Regulatory Commission (CERC) provides the exchange platform.

  • Legal basis: Energy Conservation (Amendment) Act, 2022, amending the Energy Conservation Act, 2001
  • CCTS notified: June 2023 (compliance); amended December 2023 (offset mechanism added)
  • First compliance year: FY 2025-26, with emission intensity baselines using FY 2023-24 data
  • Nine initial obligated sectors account for approximately 16% of India's total GHG emissions
  • Carbon Credit Certificates (CCCs) are the tradable unit; entities beating targets earn CCCs, laggards must buy them

Connection to this news: The article's critique centres on the fact that CCCs from industrial compliance and soil-based offsets will trade on the same exchange, yet the price signals, monitoring needs, and incentive structures for "smokestack" versus "soil" actors are fundamentally different — conflating them risks market dysfunction.

India's NDCs and the Paris Agreement's Article 6

India's Nationally Determined Contributions (NDCs), updated in August 2022 and submitted to the UNFCCC, commit to reducing the emissions intensity of GDP by 45% from 2005 levels by 2030 and achieving 50% cumulative installed electric power capacity from non-fossil sources by 2030. Article 6 of the Paris Agreement provides the framework for international carbon market cooperation: Article 6.2 enables bilateral trading of "Internationally Transferred Mitigation Outcomes" (ITMOs) between countries, while Article 6.4 establishes a UN-supervised global carbon crediting mechanism. India's CCTS allows CCCs to be linked to Article 6.2 bilateral agreements, making its design directly relevant to international climate finance flows.

  • India ratified the Paris Agreement on October 2, 2016
  • Updated NDC submitted August 2022; 45% emissions intensity reduction target by 2030 (from 2005 baseline)
  • Article 6.2: Country-to-country trading of mitigation outcomes (bilateral)
  • Article 6.4: Centralized UN carbon crediting mechanism (successor to Clean Development Mechanism)
  • India previously operated the PAT scheme (Perform, Achieve and Trade) — an energy efficiency market, not a carbon price market — which the CCTS supersedes

Connection to this news: If India's carbon market conflates compliance and offset credits without distinct methodologies, the environmental integrity of CCCs sold internationally under Article 6 agreements could be questioned, weakening India's position in global climate negotiations.

Soil Carbon Sequestration and Agricultural Offsets

Soil carbon sequestration refers to the process by which carbon dioxide from the atmosphere is captured by plants and stored in soil organic matter through practices such as conservation agriculture, reduced tillage, agroforestry, and crop residue management. In India, agriculture contributes approximately 14% of total GHG emissions (including livestock and paddy cultivation), while also offering significant sequestration potential. The CCTS offset mechanism's Phase 1 includes methodologies for agriculture and forestry sectors, enabling farmers to earn CCCs for verified emission reductions or removals. However, monitoring, reporting, and verification (MRV) for soil carbon is technically challenging due to spatial variability and permanence risks.

  • India's agriculture sector emissions: ~14% of national GHG inventory (including enteric fermentation, paddy, manure)
  • Sequestration practices eligible: conservation agriculture, agroforestry, reduced stubble burning, organic farming
  • MRV challenge: soil carbon measurements require repeated soil sampling; permanence (risk of reversal) is difficult to guarantee
  • BEE released Version 1 of the Detailed Procedure for Offset Mechanism in March 2025, covering agriculture methodologies
  • Global precedent: Voluntary Carbon Markets (VCMs) have faced credibility crises over permanence and additionality of soil credits

Connection to this news: The article's "soil" reference highlights that agricultural carbon credits require distinct additionality tests, permanence safeguards, and farmer-facing incentive structures — concerns that a unified carbon trading exchange is ill-equipped to address without separate regulatory tracks.

Key Facts & Data

  • Energy Conservation (Amendment) Act, 2022 — legal basis for India's carbon market
  • CCTS notified: June 2023; offset mechanism added: December 2023
  • Nine obligated industrial sectors; compliance begins FY 2025-26
  • India's NDC target: 45% reduction in GDP emission intensity by 2030 (from 2005 levels)
  • Agriculture accounts for ~14% of India's GHG emissions
  • India's first PAT cycle ran 2012-15; CCTS replaces PAT from FY 2026 onward
  • CERC is the exchange regulator; BEE is the scheme administrator
  • Article 6.2 (bilateral ITMOs) and Article 6.4 (UN mechanism) govern international carbon trading under Paris Agreement