India's Carbon Market Goes Live: The CCTS Explained

How India got a carbon market

India's climate commitments were, for a long time, diplomatic rather than operational. The country pledged net zero by 2070 at the Glasgow conference in 2021, and in its updated Nationally Determined Contribution of August 2022 committed to reduce the emissions intensity of GDP by 45 per cent by 2030 against 2005 levels and to reach about 50 per cent of cumulative electric power installed capacity from non-fossil sources by 2030.

Pledges of that kind do not, by themselves, impose duties on companies. What converted them into obligations was the Energy Conservation (Amendment) Act, 2022. That amendment empowered the central government to establish a carbon credit trading scheme, to specify a non-fossil energy consumption obligation for designated consumers, and to bring large commercial buildings within an energy conservation code.

The CCTS was notified under that power in 2023. It was amended on 19 December 2023 to add the offset mechanism, which opened participation to entities outside the compliance perimeter.

India also has predecessor experience that shapes the design. The Perform, Achieve and Trade scheme, which traded energy saving certificates among designated consumers, gave the Bureau of Energy Efficiency more than a decade of operating a domestic certificate market. The CCTS is recognisably descended from it, with greenhouse gas intensity replacing energy intensity as the metric.

Which sectors are covered, and which have real targets

The scheme is designed to cover nine hard-to-abate sectors: iron and steel, cement, aluminium, fertiliser, petrochemicals, textiles, pulp and paper, chlor-alkali, and petroleum refineries.

The targets themselves sit under a different statute from the scheme, and the split matters. The CCTS is a Ministry of Power instrument under the Energy Conservation Act, administered by the Bureau of Energy Efficiency. The greenhouse gas emission intensity targets are notified by the Ministry of Environment, Forest and Climate Change under the Environment (Protection) Act, 1986, through the Greenhouse Gases Emission Intensity Target Rules, 2025 and their amendments. That is why the sanction for missing a target is environmental compensation imposed by the Central Pollution Control Board rather than a penalty under the energy legislation, and why two ministries appear in what looks like a single regime.

Final targets were not notified for all nine at once, and the distinction between final and draft is the controlling practical fact for a company assessing its position:

• Sector group: Aluminium, cement, chlor-alkali, pulp and paper; Status: Final GEI targets notified; Date: 8 October 2025
• Sector group: Refineries, petrochemicals and textiles, together with targets for secondary aluminium within the already-notified aluminium sector; Status: Final GEI targets notified by G.S.R. 25(E), effective 13 January 2026; Date: Gazetted 15 January 2026
• Sector group: Iron and steel; Status: Draft only. Revised draft of 26 June 2026 covering 255 units, on a FY2023-24 baseline; the first compliance year is contested, see the note in article 26; Date: Objection window closed late August 2026; final notification pending
• Sector group: Fertiliser; Status: Draft targets only; Date: Pending as at 30 August 2026

Two consequences follow. A company in one of the seven notified sectors has binding, enforceable obligations now. A company in iron and steel or fertiliser has draft targets that indicate direction but do not yet bind, and should be planning against them without treating them as final.

Several secondary trackers state that all nine sectors were notified by March 2026. They are wrong. The International Carbon Action Partnership record, confirmed as at 16 January 2026, gives seven: aluminium including secondary, cement, chlor-alkali, pulp and paper, refinery, petrochemicals and textiles. The point remains date-sensitive, because the iron and steel objection window closed in late August 2026 and a final notification would move the obligated population from roughly 490 towards 740.

How the compliance mechanism works

Intensity targets, not absolute caps

This is the design feature that most distinguishes the CCTS from the European Union Emissions Trading System, and it is frequently misunderstood.

The CCTS sets greenhouse gas emission intensity targets, expressed as emissions per unit of output. It does not set an absolute cap on tonnes emitted. A company that grows its production can increase its total emissions and still comply, provided its emissions per unit fall to the required level.

That choice reflects a developing economy's position. An absolute cap constrains industrial growth; an intensity target constrains carbon inefficiency while permitting expansion. It is also why the scheme is sometimes described as a rate-based rather than mass-based system.

The targets themselves

The notified reduction ranges are modest in the first compliance year and steepen in the second, and they are back-loaded so that the larger share of the required reduction falls in FY2026-27.

Broadly, the tightening is in the region of 1 to 3 per cent in FY2025-26, rising to roughly 2 to 8 per cent in FY2026-27. Sector ranges published for the first tranche were approximately 2.8 to 7.06 per cent for aluminium, 4.7 to 7.6 per cent for cement, 3.3 to 11 per cent for chlor-alkali, and up to about 15 per cent for pulp and paper.

Targets are entity-specific rather than uniform within a sector, which means two plants in the same industry can face materially different obligations depending on their baseline performance.

Baseline and compliance years

Targets are set against a CCTS baseline year of financial year 2023 to 24 and bind for the compliance years 2025 to 26 and 2026 to 27.

The baseline choice matters. A company that had already invested in efficiency before FY2023-24 starts from a lower baseline and faces a harder further reduction, while a laggard starts from a higher baseline with more accessible headroom. This is a familiar criticism of baseline-and-credit designs and it applies here.

What has already fallen due

Under the Bureau of Energy Efficiency's Detailed Procedure for the Compliance Mechanism, obligated entities must submit validated greenhouse gas emissions data on Form A, verified by an accredited carbon verification agency, by 31 July each year.

For the FY2025-26 compliance year that deadline fell on 31 July 2026 and has now passed. The Bureau reviews the submission before certificate issuance is recommended and certificates are credited to the entity's registry account.

Commentary describing a ten-working-day completeness check followed by a technical review of more than thirty days circulates widely, but that timing could not be confirmed against the Bureau's published procedure and should be treated as indicative practice rather than a regulatory guarantee.

What happens if you miss

An entity that beats its target earns carbon credit certificates it can sell. An entity that falls short must buy and surrender certificates covering the shortfall.

Separately, the Central Pollution Control Board may impose environmental compensation calculated at twice the average price at which certificates traded during that compliance year's trading cycle.

The relationship between the two is the point most often got wrong. Environmental compensation is imposed in addition to, not instead of, the obligation to acquire and surrender certificates. A company that treats the compensation as a buy-out price has misread the mechanism.

The offset mechanism: how everyone else participates

The compliance mechanism binds only obligated entities in notified sectors. The offset mechanism, added by the amendment of 19 December 2023, allows other entities to participate voluntarily by generating credits from projects that reduce or avoid emissions.

How a project becomes credits

The route runs as follows. A non-obligated entity registers on the Indian Carbon Market portal and develops a Project Design Document in accordance with a methodology approved by the Bureau of Energy Efficiency. The project is validated by an accredited carbon verification agency, then submitted to the Bureau for registration. Once operating, emission reductions are verified and certificates are issued.

Which sectors have methodologies

In March 2025 the Bureau released version 1 of the Detailed Procedure for the Offset Mechanism, covering Phase 1 sectors: energy, industry, waste handling and disposal, agriculture, forestry, and transport.

Phase 2 sectors, namely construction, fugitive emissions, solvent use, and carbon capture, utilisation and storage, are to be addressed later. A project in a Phase 2 sector currently has no approved methodology and therefore no route to registration.

The verification agencies

Accredited carbon verification agencies sit at the centre of both limbs. They validate proposed offset projects, handle post-registration changes and renewals, and verify emission reductions or removals. Their work is governed by principles including impartiality, an evidence-based approach, fair presentation and documentation.

For a company on either side of the market, the practical implication is that the credibility of its position rests on an external agency's opinion, and the quality and availability of those agencies is a live constraint on the market's integrity.

Can an obligated entity buy offset credits? The boundary question

This is the first question a compliance officer with a shortfall asks, and the framework does not answer it cleanly. It is worth setting out properly, because the answer determines both the size of the market and the price.

The question. An obligated entity that misses its intensity target must acquire and surrender carbon credit certificates. May it buy certificates generated by a non-obligated entity under the offset mechanism, or must it buy only from other obligated entities in the compliance segment?

The reading that says yes.

• The Energy Conservation Act defines a carbon credit certificate uniformly, drawing no distinction between certificates issued under the compliance mechanism and under the offset mechanism. On its face that suggests a single fungible instrument.
• Certificates are issued to registered entities, a category that expressly covers both obligated and non-obligated participants, so the same instrument can be held by either.
• Under the CERC Regulations, all certificates are traded through the power exchange, and both segments operate on the same exchange. There is no separate venue, pricing structure or procurement process.
• The compliance procedure permits an obligated entity that lacks sufficient certificates to purchase additional certificates, without stipulating any restriction on the source.

The reading that says no.

• Regulation 8 of the CERC Regulations provides a separate categorisation of certificates issued to obligated and to non-obligated entities.
• Regulation 9 then allocates them to two distinct market segments: a compliance market for obligated entities and an offset market for non-obligated entities. That is difficult to read as anything other than an intention to channel each class of certificate into its own segment.

Where that leaves it. Genuinely unresolved on the text. Anyone modelling a compliance shortfall should treat cross-segment purchase as uncertain rather than assume it.

Why the offset market works either way. If cross-purchase is not permitted, offset certificates still have a buyer: Indian corporates with net-zero or carbon-neutrality commitments need credits for residual emissions they cannot eliminate internally. That demand is independent of the compliance market, so a voluntary project retains commercial value regardless of how the boundary is resolved.

The policy tension, stated plainly. Relaxing the boundary would deepen liquidity and improve price discovery, and would let obligated entities meet targets more cheaply. It would also weaken the incentive to abate. An obligated entity able to buy its way to compliance from the voluntary market has less reason to invest in cleaner processes, which is the outcome the intensity targets exist to produce. This is the same design question every compliance carbon market faces, and India has not yet answered it on the face of the instruments.

Registry and trading

Certificates are issued and retired through a registry operated in connection with Grid Controller of India Limited, with a registry integration layer connecting issuance and retirement functions.

Secondary market transactions run through a power exchange trading interface, using exchanges regulated by the Central Electricity Regulatory Commission. That choice reuses existing regulated market infrastructure rather than building a bespoke carbon exchange, which is pragmatic and shortens the path to a functioning market.

The trading architecture has since been formalised. The Central Electricity Regulatory Commission notified the Terms and Conditions for Purchase and Sale of Carbon Credit Certificates Regulations, 2026 on 27 February 2026, gazetted on 3 March 2026. These are the first comprehensive regulatory framework for exchange-traded carbon credits in India, and they establish:

• trading through power exchanges, of which three are currently registered, or such other modes as the Commission may permit;
• monthly trading sessions;
• a price band comprising a floor price and a forbearance price, both approved by the Commission;
• the registry operated by Grid Controller of India Limited; and
• market integrity safeguards.

The price band is the provision to watch. It means the certificate price is bounded at both ends by regulatory decision rather than set purely by the market, which caps both the upside for over-performers and the exposure for those short of their targets.

Trading was widely expected to open around October 2026, following assessment of the compliance filings due on 31 July 2026, with commentary suggesting a November to January trading window repeating annually. That expectation derives from ministerial statements and commentary rather than a notified commencement date, and as at early August 2026 no trading window had opened. Anyone planning around a trading date should treat it as an expectation rather than a commitment.

What the CCTS means commercially

Four consequences follow for a company in a covered sector.

Emissions intensity is now a financial line item. Outperformance generates a saleable asset; underperformance generates a liability that compounds through the environmental compensation multiple. This belongs in financial planning, not only in the sustainability function.

Measurement quality determines exposure. Because compliance turns on verified data, weak measurement is itself a risk. An entity that cannot substantiate its intensity figure faces the verification agency's judgement rather than its own.

Capital allocation decisions now have a carbon price attached. An efficiency investment that previously competed only on energy savings now also generates or avoids certificates, which changes the return calculation.

The two-year compliance window is short. Targets bind for FY2025-26 and FY2026-27, and the back-loading means the harder reduction falls in the second year. A company that treated the first year as a trial has limited time.

What is still uncertain

Three things should temper any confident account of the scheme's effect.

The price is unknown. Until trading opens and a price forms, the financial significance of a certificate surplus or shortfall cannot be quantified. Every projection currently in circulation rests on assumed prices.

Two large sectors are missing. Iron and steel and fertiliser are among the biggest emitters in the covered set, and their targets remain in draft. The market's depth and the scheme's emissions coverage both depend on their arrival.

Measurement, reporting and verification capacity is being built in parallel with the obligation. The scheme's integrity rests on the accredited agency network, which is new. This is the same capacity constraint visible in India's sustainability assurance market, and it is the principal risk to the scheme delivering what its design promises.

Frequently asked questions

What is the CCTS? India's domestic carbon market, notified in 2023 under the Energy Conservation Act, 2001 as amended in 2022, and administered by the Bureau of Energy Efficiency. It has a compliance mechanism for obligated industrial entities and a voluntary offset mechanism.

Which sectors does the CCTS cover? Nine hard-to-abate sectors: iron and steel, cement, aluminium, fertiliser, petrochemicals, textiles, pulp and paper, chlor-alkali and petroleum refineries.

Do all nine sectors have targets? No. Seven have final notified targets, four notified on 8 October 2025 and three by G.S.R. 25(E), gazetted 15 January 2026. Iron and steel and fertiliser remain at draft stage as at August 2026.

How many companies are obligated entities? Approximately 490 across the seven sectors with final targets, expected to rise to roughly 740 once all nine are notified.

How much of India's emissions does the scheme cover? Approximately 16 per cent, amounting to more than 700 million tonnes of carbon dioxide equivalent once all nine sectors are notified.

Does the CCTS cap total emissions? No. It sets greenhouse gas emission intensity targets, expressed per unit of output, not absolute caps. A company can increase total emissions while complying, provided intensity falls sufficiently.

What is the baseline year? Financial year 2023 to 24. Targets bind for compliance years 2025 to 26 and 2026 to 27.

What was the first compliance deadline? Validated greenhouse gas emissions data on Form A, verified by an accredited carbon verification agency, was due to the Bureau of Energy Efficiency by 31 July 2026. That deadline has passed.

What happens if we miss our target? You must buy and surrender certificates covering the shortfall. The Central Pollution Control Board may in addition impose environmental compensation at twice the average certificate trading price for that cycle. The compensation is additional to the surrender obligation, not a substitute for it.

Can companies outside the nine sectors participate? Yes, through the offset mechanism added in December 2023. A non-obligated entity registers on the Indian Carbon Market portal, prepares a Project Design Document under an approved methodology, has it validated by an accredited agency and submits it to the Bureau for registration.

Which offset sectors have approved methodologies? Phase 1 covers energy, industry, waste handling and disposal, agriculture, forestry and transport. Phase 2, covering construction, fugitive emissions, solvent use and carbon capture, utilisation and storage, is to follow.

Where are certificates traded? Through a power exchange trading interface using exchanges regulated by the Central Electricity Regulatory Commission, with issuance and retirement through a registry connected to Grid Controller of India Limited.

When will trading start? Trading was expected around October 2026, but that reflects ministerial statements rather than a notified date, and no trading window had opened as at early August 2026.