- India is set to launch its Carbon Credit Trading Scheme (CCTS) in mid-2026.
- The scheme will replace the existing Perform, Achieve, and Trade (PAT) scheme.
- Focus shifts from energy efficiency to greenhouse gas (GHG) emissions trading.
Key Features of the CCTS
- Compliance Mechanism: Targets emissions from industrial and energy sectors.
- Offset Mechanism: Encourages voluntary reductions from entities not under compliance.
Regulatory Framework
- Governed by the Energy Conservation (Amendment) Act, 2022.
- Central Government can specify carbon trading schemes and issue carbon credit certificates (1 tCO₂e = 1 certificate).
Institutional Framework
- National Steering Committee for the Indian Carbon Market (NSCICM): Oversees the CCTS.
- Key roles include:
- Bureau of Energy Efficiency (BEE): Administrator.
- Grid Controller of India (GCI): Registry operator.
- Central Electricity Regulatory Commission (CERC): Regulator.
Advantages of the Carbon Market
- Industrial Competitiveness: Incentivizes clean technology adoption.
- Example: Tata Steel aims for net-zero by 2045.
- Compliance with Global Regulations: Prepares industries for the EU’s Carbon Border Adjustment Mechanism (CBAM).
- Climate Diplomacy: Enhances credibility in climate negotiations and attracts investments.
- Revenue Generation: Creates new revenue streams through the sale of carbon credits.
- Encouragement of Renewable Energy: Pushes industries toward renewable sources.
- Attracts Foreign Investment: A transparent market encourages investment in low-carbon projects.
Challenges in Implementation
- Weak Emission Reduction Targets: Focuses on emissions intensity, leading to excess credit supply.
- Inadequate Compliance Mechanisms: High non-compliance rates due to weak penalties.
- Limited Sectoral Coverage: Excludes major polluting sectors like thermal power.
- Lack of Reliable Measurement Systems: Concerns about carbon credit verification.
- Absence of Secondary Market: Limits price discovery and market activity.
Recommendations for Improvement
- Strengthen Emission Targets: Set ambitious reduction goals with a dynamic carbon price floor.
- Expand Sectoral Coverage: Include power generation, transport, and agriculture.
- Integrate Carbon and Renewable Energy Markets: Create a unified trading platform.
- Enhance Monitoring and Verification: Implement robust tracking systems.
- Promote Private Sector Participation: Offer incentives for clean technology investments.
- Create a National Carbon Trading Exchange: Ensure liquidity and market stability.
Conclusion
- The CCTS has the potential to drive emissions reductions and enhance industrial competitiveness.
- Success relies on strengthening regulatory mechanisms and integrating with global carbon markets.
Sources
- Data and insights derived from the article published in The Financial Express on March 12, 2025, and other reports referenced within the editorial.