Opinion: By Making Emission Cuts A Moneyspinner, India’s Carbon Credit Trading System Will Prove A Gamechanger
Carbon markets have emerged globally as a vital mechanism for limiting emissions by assigning carbon prices. India's CCTS is set to officially launch in 2026.
By Utkarsha Pathak and Ritwik Bahuguna
India, as one of the fastest-growing economies in the world, has been at the forefront of the global debate on climate change and sustainability. With its rising energy demands and increasing greenhouse gas (GHG) emissions, the need for an innovative solution to balance industrial growth and environmental sustainability has become apparent. One such solution is the Carbon Credit Trading Scheme (CCTS). This article traces the evolution of India’s CCTS, from its inception to its current state, and explores the challenges and future potential of the scheme.
The Call To Action – India’s Climate Challenge
In the early 21st century, India found itself at a critical juncture, marked by unprecedented industrial growth and urbanisation. While the nation was emerging as one of the fastest-growing economies, this rapid development came at a steep cost, leading to soaring energy demands, deforestation, resource depletion, and significant air pollution. The escalating greenhouse gas emissions contributed substantially to global climate change, compelling India to confront its growing environmental challenges.
As international climate agreements like the Kyoto Protocol and the Paris Agreement took effect, India faced mounting pressure to reconcile its development goals with the urgent need for environmental stewardship. The nation recognised a critical dilemma: how could it achieve economic growth without exacerbating environmental degradation? The solution lay in establishing a carbon market, which offered financial incentives for businesses to reduce their carbon footprints. This market-based approach aimed to control emissions while fostering economic expansion.
Genesis Of The Carbon Credit Trading Scheme (CCTS)
Carbon markets have emerged globally as a vital mechanism for limiting emissions by assigning carbon prices. This innovative approach incentivises businesses to reduce their emissions through technological upgrades, adopting renewable energy, and implementing cleaner processes. Companies that exceed their emissions reduction targets can sell their excess carbon credits to those facing challenges in meeting their goals.
India took its first step in this direction by launching the Perform, Achieve, and Trade (PAT) Scheme in 2012, targeting energy efficiency in high-emission industries such as power generation, steel, and cement. Although the PAT scheme succeeded in raising awareness and promoting energy efficiency, its scope was limited to specific sectors. The introduction of the CCTS, set to officially launch in 2026, will mark a significant advancement, establishing a national framework for carbon trading that aligns with India’s Intended Nationally Determined Contributions (INDCs) pledged under the Paris Agreement.
The CCTS represents a broader, more comprehensive effort to tackle emissions across various sectors, expanding on the foundation laid by the PAT scheme. This new regulatory framework aims to standardise carbon trading practices, allowing businesses to monetise their emissions-reduction efforts. By creating financial incentives for companies that can reduce their carbon footprint beyond mandated levels, the CCTS will help catalyse a transition towards a more sustainable economy, paving the way for India to balance economic growth with environmental responsibility effectively.
CCTS In Action – Impact Across Industries
Under the CCTS, businesses will be mandated to limit their emissions or purchase carbon credits from more efficient firms, driving significant sectors like power generation, cement, and steel — responsible for a substantial share of India’s emissions — to participate actively. This engagement will lead to considerable investments in new technologies aimed at cutting emissions. For instance, many power generation companies have begun transitioning to renewable sources, such as solar and wind energy. At the same time, industries like cement and steel are adopting more efficient production techniques to reduce their reliance on fossil fuels.
The scheme’s reach will extend beyond these primary sectors, encompassing agriculture and forestry. Farmers will be encouraged to engage in afforestation and agroforestry projects. These initiatives will sequester carbon and provide new income streams for generators who will be able to sell carbon credits to larger companies, showcasing a dual benefit of environmental sustainability and economic opportunity. Additionally, an emissions trading system with cross-sector trading would improve cost-efficiency by 30-50%, compared to one without trading, by leveraging emissions reductions across industries. The carbon price in such a system will also be influenced by Renewable Purchase Obligation (RPO) policies, which interact with the electricity sector, necessitating careful coordination of emission caps and RPO targets.
Interestingly, small and medium enterprises (SMEs), initially perceived as lagging in the carbon market, will gradually carve out their niche. With financial incentives and accessible innovations in clean technology, particularly energy efficiency, local entrepreneurs will be motivated to invest in sustainable practices. This shift will result in a dynamic landscape where even SMEs can contribute to emission reduction and gain financially from clean technology investments.
As the CCTS is rolled out, several high-emission industries, such as power generation, steel, and cement, will be brought on board. Recognising that reducing emissions could lead to financial gains, these sectors will quickly adapt by implementing new technologies and processes to comply with the cap-and-trade requirements. Auctioning of emission permits within the CCTS will also provide significant revenue for the government, while financial transfers across sectors will depend on how emissions are allocated within the system.
The CCTS will also enable India to engage actively in global carbon markets, facilitating international collaboration, investments, and the development of advanced emission-reducing technologies. This initiative will foster a collaborative effort towards net-zero emissions, creating partnerships among India’s corporate sector, local governments, NGOs and civil society.
The CCTS will fundamentally transform India’s approach to managing carbon emissions. The system will position India favourably in the global sustainability landscape by integrating critical sectors, providing opportunities for SMEs and farmers, and encouraging collaboration for net-zero goals. This holistic strategy will address the pressing challenge of climate change and enhance India’s competitiveness in an increasingly eco-conscious world.
The Roadblocks – Challenges Along The Way
The Carbon Credit Trading System in India will face many challenges that could hamper its initial implementation. Corruption in issuing carbon credits will be a significant concern, with reports likely indicating that some companies may inflate their reported emission reductions to generate additional credits. This malpractice could cast a shadow on the integrity of the carbon credit market and raise questions regarding transparency and accountability.
Additionally, a lack of robust regulatory oversight will hamper the CCTS’s potential. Many industries, especially those in capital-intensive sectors like steel and cement, may resist adopting emission reduction measures due to the perceived high compliance costs. SMEs will find the financial burden particularly daunting, viewing compliance costs as a significant deterrent to participating in the carbon trading scheme.
In light of these operational hurdles, the Indian government is expected to take decisive action to ensure credibility, and enhance the effectiveness of the CCTS. Stricter regulations are expected to be introduced alongside the establishment of independent audit mechanisms to oversee the carbon credit issuance process. These measures will aim to plug existing loopholes and introduce a revised penalty structure, ensuring non-compliance costs outweigh the investments required for genuine emission reductions.
As a result of these efforts, the CCTS will gradually gain traction. Industries will begin recognising the long-term benefits of engaging with the carbon trading system. Enhanced transparency and accountability measures will mitigate the initial resistance and foster greater stakeholder trust. The government’s commitment to monitoring carbon credits and enforcing penalties for non-compliance will signal a serious dedication to creating a reliable and credible trading environment.
The Future – India’s Vision For A Carbon-Neutral Economy
India’s CCTS will rapidly evolve into one of the world’s fastest-growing carbon markets. As part of India’s ambitious strategy to achieve net-zero emissions by 2070, the CCTS will emerge as a cornerstone of sustainability, integrating various sectors into its framework. The scheme will be recognised for its potential to trade carbon credits, and its role in creating a sustainable economic model prioritising environmental responsibility.
The future of the CCTS looks promising, with plans to expand its scope to include critical sectors such as agriculture, waste management, and transportation. This expansion will engage more stakeholders in the climate action narrative, allowing companies and individuals to participate actively. With the anticipated introduction of technological advancements, particularly blockchain, the carbon market will be set to achieve unprecedented levels of transparency and accountability. This innovation will allow stakeholders to track the lifecycle of carbon credits, ensuring they reflect genuine emission reductions, thus fostering trust in the system.
Moreover, a personal carbon footprint market will gain traction, enabling individuals to offset their emissions through verified credits.
Globally, India is poised to become a key player in international carbon markets. By aligning with global standards and participating in cross-border carbon credit transactions, India can attract international investment while continuing to innovate in low-carbon technologies.
Path Forward
India will make significant strides towards becoming a leader among developing nations in carbon market innovations, with its CCTS serving as a testament to market-driven solutions for one of humanity’s most pressing challenges — climate change. This journey towards a greener future will be deeply intertwined with the CCTS, which is expected to reshape the sustainability landscape in the country.
The CCTS will represent a commitment to reducing carbon emissions through continuous improvements, increased accountability, and adoption of innovative practices. As it evolves, the scheme will aim to help India achieve its climate goals and inspire other developing nations striving to balance economic growth with sustainable practices. While the path to achieving complete carbon neutrality may be long, by establishing a robust framework for carbon credit trading, India will lead by example and attempt to demonstrate a replicable model for other nations to follow in their quest for achieving sustainability.
What will start as a pilot programme will become a key pillar in India’s strategy for combating climate change, showcasing the nation’s dedication to transparency, accountability, and international collaboration. As the CCTS continues to mature, it will lay the groundwork for a carbon-neutral future, offering immense possibilities for both domestic and international stakeholders. In essence, India’s Carbon Credit Trading Scheme will symbolise a proactive approach to climate action, exemplifying how developing nations can leverage market mechanisms to foster sustainable growth while addressing global environmental challenges.
Utkarsha Pathak is Partner – Farlense Group, and Ritwik Bahuguna is Co-Founder and Managing Director, Farlense Group, and Founder – Roots Foundation.
[Disclaimer: The opinions, beliefs, and views expressed by the various authors and forum participants on this website are personal and do not reflect the opinions, beliefs, and views of ABP News Network Pvt Ltd.]
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