India is facing the climate problem head-on, with upcoming plans for implementing the Carbon Credit Trading System (CCTS); we have finally shifted from intent to infrastructure. Notified back in 2023, CCTS is the very backbone of the much-awaited carbon pricing system in India.
The framework is summarized as follows: companies that reduce their greenhouse gas emissions more than the government-set benchmark will earn tradable credits. In contrast, underperforming companies will have to purchase them on the exchange. Carbon pricing is not the aim, but a strict regulatory means to achieve a clean future.
How It Works
- A government entity sets benchmarks or targets for each industrial sector.
- Companies measure the emissions from their projects using approved methods
- Third-party, independent auditors verify these numbers
- Verdict- if you beat the benchmark, you can earn carbon credits into the registry account; if you miss it, then you have to buy Carbon Credit Certificates (CCCs) on the exchange and retire them for compliance.
Who Sets The Rules
- Bureau of Energy Efficiency (BEE): Consider BEE the admin of this Carbon Credits System. It approves methodologies for calculating CCCs, reviews the PDDs (Project Design Document), works with independent auditors to ensure calculation accuracy, and then issues CCCs to different projects. It is the front end for all carbon offsets. Carbon offsets are projects specifically designed to remove or avoid greenhouse gas emissions, which, when converted into CCCs, can channel additional money outside any funding caps. Here, 1 CCC = 1 tonne CO₂e, which can be later sold or retired.
- Central Electricity Regulatory Commission(CERC): This is your market referee for all power markets. It currently oversees and regulates all electricity and power-related matters in a national capacity. It hosts CERC-approved power exchanges, such as IEX/PXIL/HPX, where buyers and sellers trade electricity and energy certificates, including Renewable Energy Certificates (RECs), which are similar to Carbon Credit Certificates (CCCs). Since it already holds a functioning platform for orders, surveillance, auctions, and clearing for power exchanges, CCCs will be added to their product list for carbon credits trading. To understand better, think of CERC as the SEBI for regulating the new carbon credits system.
- Grid-India: Think of this as the ledger for all registered buyers and sellers. If your name is not in the registry, your trade does not count. This lists all the registered accounts, records issuance of CCCs, and their retirements for compliance.
- Paris Agreement Article 6.2: COP21(Paris) in December 2015, first opened the doors to international carbon trading/cooperation. At COP26 (Glasgow) November 2021, the principle of Paris Agreement Article 6.2 was further elaborated in terms of regulations and outcomes. This provided a guidebook on the scope of foreign exchange of carbon reductions- exported as Internationally Transferred Mitigation Outcomes or ITMOs. Think of ITMOs as cross-border climate credits that can be sold or bought to achieve a country’s Nationally Determined Contribution or NDC targets. NDC target is a country’s official climate goal under the Paris Agreement.
- Ministry of Environment, Forest and Climate Change( MoEFCC): If your business is planning offset projects for international buyers, you need to check with the MoEFCC to ensure you meet all the policies and apply for authorization of ITMOs.
What This Means For Businesses
Let’s take a hypothetical company- Joy Steel Ltd. with the following parameters:
- Output: 1.0 million tonnes of steel/year
- Current intensity: 2.20 tCO₂e per tonne
- Government benchmark for steel industry: 2.00 tCO₂e per tonne
- Assumed CCC price range: ₹1000 per tCO₂e
This means the compliance gap to achieve the benchmark limit is (2.20 − 2.00) × 1,000,000 (Output) = 200,000 tCO₂e. Buying CCCs to fill this gap will come to this calculation:
At ₹1,000/t → ₹20 crore/year
Doing absolutely nothing to fill this gap for the next year will only add to the recurring carbon bill, which, by the above numbers, you can understand will be very harmful in the long run. So what’s the solution here? Set up an offset project that will run parallel to your business and will cut future CCC purchases.
For eg, you set up a Waste-Heat Recovery (WHR) on sinter/hot stoves in your factories. Due to this you generate an estimated 25 GWh/year.
Grid emission factor (GEF) = the average CO₂e per unit of electricity supplied by a power grid. Let’s estimate it to be 0.70 tCO₂e per MWh
Gross avoided emissions (tCO₂e): 25,000 MWh×0.70 tCO₂e/MWh = 17,500 tCO₂e/Year
Since 1 CCC= 1 tCO₂e, these become 17,500 CCCs/yr.
You can either use these CCCs or sell them. Alternatively, set up other offset methods to save up CCCs and use them in ensuring smooth business working or for an extra stream of revenue.
Going forward
India is gearing up to make the Carbon Market rulebook functional. It can learn from China’s operations to steer our capital into cleaner tech and scale big. It’ll start with the big emitters, gradually scaling into all the industries, while also working with innovators to suggest better offset methods.
It will also bring a skillset demand for carbon accounting, auditing, registry operations, and analytics, which today’s youth must leverage for a head start in this new market. The Carbon Market, once functional, is going to be one of the most innovative systems that prices pollution and rewards reductions, and I, for one, am looking forward to it.
