Carbon Credit trading scheme Updated 2025

1. Understanding Carbon Trading and India’s Bold Step:

Carbon trading is a market-driven mechanism that puts a price on carbon emissions, incentivizing industries to adopt cleaner practices. At its core, it revolves around carbon credits—tradable certificates representing one metric ton of reduced or removed carbon dioxide. Companies that exceed emission reduction targets can sell their surplus credits, while those struggling to meet goals can buy them, creating a financial push for sustainability. This system not only drives innovation but also fosters collaboration among industries to collectively reduce emissions.

India, facing the twin challenges of industrial growth and environmental responsibility, has launched the Carbon Credit Trading Scheme (CCTS) to establish a regulated carbon market. The CCTS transitions India from voluntary to compliance-driven carbon trading, unifying efforts through the Indian Carbon Market (ICM). By linking emissions reduction with financial rewards, this scheme aims to decarbonize the economy and solidify India’s position as a leader in global climate action, all while fostering a sustainable future.

2. How Does India’s Carbon Credit Trading Scheme Work?

India’s Carbon Credit Trading Scheme (CCTS) is like a marketplace where industries trade pollution permits to fight climate change profitably. Each company gets a target for how much carbon it can emit. Those who emit less than their limit earn carbon credits, which are like golden tickets they can sell to other companies needing extra allowances. This means industries are rewarded for going green while laggards pay for their excess emissions—turning sustainability into a business advantage!

At the heart of this system lies the Indian Carbon Market (ICM)—a unified platform that makes trading these carbon credits transparent and efficient. It’s not just about cutting emissions; it’s about fostering innovation, clean technology, and accountability across industries. With CCTS, India is laying the foundation for a future-ready carbon market that aligns with global climate goals, paving the way for a cleaner and greener economy.

Win-Win for Business and Environment

Company A: Reduces emissions

Earns Carbon credits

Sells to Company B

Company B offsets emissions

3. Key Objectives of the Carbon Credit Trading

Scheme (CCTS) India’s Carbon Credit Trading Scheme is more than just a regulatory framework; it’s a transformative strategy with clear, impactful

objectives:

• Encouraging Carbon Emission Reduction: The primary goal of the CCTS is to motivate industries to reduce greenhouse gas emissions. By attaching financial value to reduced emissions, the scheme incentivizes businesses to adopt cleaner and more efficient technologies.

• Establishing the Indian Carbon Market (ICM): The CCTS aims to create a unified platform for trading carbon credits. The ICM ensures transparency and efficiency, making it easier for companies to trade credits while adhering to their emission targets.

• Driving Innovation and Decarbonization: Through monetary rewards and compliance mechanisms, the scheme fosters innovation in low-carbon technologies and encourages projects focused on decarbonizing India’s economy.

• Supporting Climate Commitments: The CCTS aligns with India’s commitment under the Paris Agreement to achieve net-zero emissions by 2070. It bridges the gap between global climate goals and domestic economic growth, showcasing India as a leader in sustainable development.

• Attracting International Investment: By promoting a structured carbon market, India positions itself as an attractive destination for international green investments, creating opportunities for partnerships in sustainability-driven initiatives.

4. Why the Carbon Credit Trading Scheme (CCTS) Matters

Fights Climate Change: Reduces greenhouse gas emissions, aiding global temperature goals. 

Marries Growth with Sustainability: Drives innovation in green technologies while boosting industrial growth. 

Positions India as a Global Leader: Demonstrates commitment to the Paris Agreement and sets an example for developing nations. 

Attracts Investments: Encourages domestic and international funding in renewable energy and decarbonization projects.

Empowers Industries: Turns climate action into a business opportunity with financial incentives.

5. Challenges and the road ahead

Monitoring and Verification: Establishing robust systems to track emission reductions and ensure transparency.

Industry Participation: Encouraging widespread adoption of the carbon market, especially among small and medium enterprises.

Infrastructure Development: Building the necessary infrastructure for efficient trading and regulatory compliance.

Market Volatility: Ensuring the stability of the carbon credit market amid fluctuating demand and supply.

Awareness and Education: Educating industries and stakeholders about the benefits and operations of carbon trading.

6. Global Success in Carbon Credit Trading: Key Insights

European Union Emissions Trading System (EU ETS): One of the oldest and largest carbon markets, the EU ETS has set a benchmark for global carbon trading systems. Covering more than 11,000 power plants and industrial facilities across 27 countries, it has successfully reduced emissions by over 35% since its inception in 2005. By setting a cap on emissions and allowing companies to trade carbon allowances, the EU has incentivized businesses to adopt cleaner technologies. As a result, the system has become a vital tool in the EU’s climate strategy, helping it meet its 2030 emission reduction targets and set the stage for a carbon-neutral Europe by 2050.

California Cap-and-Trade Program (USA): California’s Cap-and-Trade Program has been a major success in the U.S., covering more than 450 companies across multiple sectors, including power generation, transportation, and industrial processes. Since its launch in 2013, the program has helped California cut emissions by 14%, with the state on track to meet its goal of a 40% reduction by 2030. The auction-based model has raised billions of dollars, which are reinvested into climate projects, including renewable energy initiatives, electric vehicle infrastructure, and public health programs.

China’s National Carbon Market: In 2021, China launched its national carbon trading market, which quickly became the world’s largest carbon market in terms of carbon allowances. Initially focusing on the power generation sector, China plans to expand it to cover industries like steel and cement. The market has seen rapid growth and is expected to be a pivotal tool in helping China meet its ambitious carbon-neutral goal by 2060. Despite challenges, such as price volatility and low participation in the early stages, China is continuously refining its market to make it a more robust and effective system.

7. Key takeaways for India from world players:

Cap-and-Trade Mechanism: India can implement a cap-and-trade model like the EU, where a limit is set on emissions for various sectors. Companies would need to buy allowances for exceeding limits, encouraging them to reduce emissions and adopt cleaner technologies.

Auction-Based Revenue System: Like California, India could raise revenue through auctioning carbon allowances. This revenue can be reinvested in green projects such as renewable energy, electric vehicle infrastructure, and energy efficiency initiatives.

Expanding Market Coverage: India should aim to extend its carbon market across multiple industries, as seen in the EU and California. This would allow broader emission reductions and encourage sectors like transportation, manufacturing, and agriculture to participate.

Gradual Expansion: China’s approach of starting with power generation and gradually expanding to other sectors like cement and steel offers a scalable roadmap. India can adopt this phased approach as it fine- tunes its carbon trading system.

International Integration: India could explore linking its carbon market with international systems to enhance liquidity and foster collaborations, similar to China’s integration with global markets. This will increase participation and create more trading opportunities.

Continuous Refinement of the System: Just like China, India will need to continually refine its carbon trading mechanisms to address issues like price volatility and improve market efficiency, ensuring long-term success and stability.