India introduces carbon credit trading scheme

Under its Carbon Credit Trading Scheme (CCTS), the Indian government recently established greenhouse gas (GHG) emissions intensity objectives for eight energy-intensive industrial sectors, including steel, cement, aluminum, textiles, petrochemicals, oil refineries, paper & pulp, and chlor alkali. Introduced in 2023 under the Energy Conservation (Amendment) Act, it seeks to reduce emissions and provide marketable carbon credit certificates to organizations that surpass criteria, while permitting laggards to purchase credits or pay fines. The plan is loosely based on the PAT (Perform, Achieve, Trade) method, which allows high performers to sell efficiency certificates and others to comply through purchases, thereby successfully reducing energy intensity throughout covered industries. However, assessments of the earlier PAT cycles revealed mixed results at the plant level, despite achieving aggregate reductions in energy intensity.

 The heart of the critique: CCTS’s current targets aim for only a ~1.68% annual decline in emissions intensity from 2023–24 to 2026–27—less ambitious than the projected industry-wide decline of ~2.53% and significantly less than the power sector’s 3.44% annual reduction needed for alignment with India’s net‑zero ambitions. This disparity suggests that while well‑intentioned, CCTS targets may not be stringent enough to meet both India’s 2030 NDCs (45% reduction in emissions intensity vs. 2005) and its 2070 net‑zero roadmap.

Moreover, CCTS presently excludes key sectors like power, transport, agriculture, MSMEs, and thermal plants—limiting its economy-wide impact. Critics argue for a shift away from merely sector/entity‑level compliance toward an economy‑wide evaluation to truly measure environmental ambition and success.

Looking ahead, experts recommend tightening targets progressively, expanding sectoral coverage, integrating international best practices for robust monitoring, and linking CCTS trajectories directly to NDC and net‑zero modeling. Only then can it evolve into a meaningful tool for India’s decarbonization journey.