L&S Attorneys · Est. 1985
Lakshmikumaran & Sridharan logo
FAQs

India's Carbon Credit Trading Scheme - explained.

Ten plain-language answers on CCTS, the top five risks to be aware of before investing in carbon credits, and a ten-point to-do list for voluntary carbon market buyers.

FAQs

Carbon Credit Trading Scheme (CCTS): 10 questions answered.

Diligence

Top five risks to be aware of before investing in carbon credits.

Risk 01

Additionality

A credit is additional if the emissions reduction is beyond what would have happened in comparison with business as usual - it should be over and above. Additionality is the most contested concept in carbon markets and the primary source of integrity failures. If a solar plant would have been built anyway due to its economics, credits from it are not truly additional. Similarly, if a company was required to reduce emissions due to a regulatory requirement in the natural course of business, that reduction will not pass the additionality test. Additionality must be seen from multiple dimensions - regulatory, financial, technological.

Risk 02

Permanence

Permanence refers to how long the carbon removed stays out of the atmosphere. Carbon credits should be generated and traded only against CO₂ removal, reduction or avoidance that is permanent or close to permanent, with minimal chances of reversal. Switching to a renewable source of energy for only 12 months, for instance, is not a permanent measure. Credibility of carbon projects and credits weighs heavily on permanence; without it, desired GHG reductions will never take place and credits lose their purpose.

Risk 03

Retiring a carbon credit

When a credit is retired it is permanently removed from the registry and cannot be traded or used again. Retirement is the act of claiming the climate benefit. A company claiming carbon neutrality must retire credits equivalent to its unabated emissions. Credits held but not retired cannot support a climate claim. When purchasing a carbon credit, there must be enough checks to ensure it is not already held or retired.

Risk 04

Double counting

Double counting occurs when the same GHG emission reduction is claimed by more than one party. In a bilateral agreement between two countries, both the host country and the buyer country cannot claim the same credits for their respective climate goals - only one (usually the buyer, unless specified otherwise) does. The same credits cannot be traded in two markets, and the same reductions cannot be registered under two schemes. This principle applies wherever the same measure produces benefits more than once; otherwise the carbon market is defeated.

Risk 05

Greenwashing

Greenwashing using carbon credits occurs when a company uses credits to claim environmental credentials that are not genuinely supported - buying cheap, low-quality credits to claim 'carbon neutrality'; claiming net-zero without disclosing that 80% of emissions are unabated; or using credits from projects that are not additional, permanent, or accurately measured. The term is broader and covers other claims without credible and adequate climate contributions that mislead the user of the information.

To-do list

Ten points for buyers in the voluntary carbon market.

  1. 01

    Define your climate strategy before you buy anything

    Credits should offset residual emissions after genuine reductions - not substitute for them. Map your Scope 1, 2 and material Scope 3 emissions first. Know exactly what unabated emissions you need to cover and why.

  2. 02

    Understand what claim you are actually making

    'Carbon neutral', 'net zero', 'climate positive' and 'carbon negative' are legally and substantively different claims. Before buying credits, confirm what standard your claim is being made under and what disclosure obligations come with it, especially in light of regulations like India's SEBI BRSR Core and the EU Green Claims Directive.

  3. 03

    Understand the premium

    A premium is attached for the nature of the project, the seller's past deliveries, the geographical market being operated in, and other factors. These must be understood to determine fair price, as it can fluctuate greatly depending on the quality of credits.

  4. 04

    Check which standard certified the credit

    There are various standards such as Verra VCS, Gold Standard, American Carbon Registry (ACR), and Climate Action Reserve (CAR). Check whether the credit carries credible labels like the ICVCM CCP label that signify highest-quality voluntary credits. Avoid uncertified or self-verified credits.

  5. 05

    Verify additionality independently

    Use third-party verification that independently rates individual projects on additionality, permanence and MRV quality, among other risk factors. Registration with a registry and claiming to meet the methodology obligation alone does not guarantee a high-quality credit.

  6. 06

    Check the project's registry record directly

    Every credit from the registry has a unique serial number listed on publicly accessible registries. Before purchasing, verify that the credits exist, have not already been retired by someone else, and that the project's verification reports are publicly available.

  7. 07

    Understand permanence risk for the project type

    Identify permanence risk checks relevant to the project type. For forestry and soil carbon projects, the buffer pool percentage held against reversals is a relevant test - and what happens if the forest burns or the project is abandoned? Match the permanence horizon to the claim period envisaged by the entity.

  8. 08

    Look for co-benefits but don't let them substitute for carbon integrity

    Credits with verified SDG co-benefits (biodiversity, water, community livelihoods) are valuable and often command price premiums. Credible certifications should be used. However, co-benefits should add to carbon integrity, not compensate for weak additionality or poor MRV.

  9. 09

    Get a legal review of your climate claim before publishing it

    With India's SEBI BRSR Core, the EU Green Claims Directive and similar frameworks tightening globally, an unsubstantiated climate claim backed by low-quality credits carries legal and reputational liability. Before publishing any carbon neutrality claim, conduct a legal review against applicable jurisdiction-specific standards and disclosure requirements.

  10. 10

    Plan for a world where the rules will change

    The VCM is in active regulatory flux. Article 6 rules are still being operationalised, and jurisdictions are adding greenwashing liability. Decide whether to buy credits in tranches or lock into long-term contracts, and build in contractual protections - quality warranties, replacement clauses - in case credit standards are later found to be insufficient.

Contact

Get in touch with the practice.

For information requests on our publications, webinars and practice areas.

Contact us