India is set to operationalise its first nationwide compliance-based carbon trading programme in FY 2025–26 (April 2025–March 2026). The initiative marks a major step in building a structured Indian Carbon Market (ICM) that prices industrial emissions and aligns economic growth with climate commitments.
The programme is being implemented under broader framework of the Carbon Credit Trading Scheme (CCTS), 2023, which provides the legal and institutional structure for carbon trading in India.
What is Objective?
The scheme aims to:
- Reduce greenhouse gas (GHG) emissions in emission-intensive industries
- Introduce market-based pricing of carbon
- Encourage industries to improve emission efficiency
- Support India’s long-term net-zero goals
- Protect Indian exports from external carbon taxes such as the EU’s CBAM
Key Highlights
Coverage in Initial Phase
- 490 industrial units across seven sectors have been issued emission-intensity targets.
- Notifications issued on:
- October 8, 2025
- January 13, 2026
Sectoral Breakdown
October 2025 notification (281 units):
- Aluminium
- Cement
- Chlor-alkali
- Pulp & paper
January 2026 notification (208 units):
- Secondary aluminium
- Petroleum refineries
- Petrochemicals
- Textile
Together, these sectors account for a significant share of India’s industrial emissions.
Sectors Yet to be Included
- Steel
- Fertiliser
Though proposed, these sectors have not yet been issued targets. Notably, the power sector, India’s largest emitter, is excluded from the first phase.
Programme Structure
The Indian Carbon Market operates through two mechanisms:
Compliance Mechanism (Mandatory)
- Covers around 800 emission-intensive units across nine sectors (to be expanded in phases).
- Industries (Obligated Entities) are assigned Greenhouse Gas Emission Intensity (GEI) targets.
- If a company emits less than its target:
- It earns Carbon Credit Certificates (CCCs).
- If it exceeds the target:
- It must purchase credits from the market.
Targets are issued for a three-year duration.
Voluntary Offset Mechanism
- Encourages projects that reduce or remove emissions.
- Nine approved methodologies published.
- 15 additional methodologies under development.
- Includes:
- Carbon capture
- Nature-based solutions
- Two project design documents are currently under evaluation for credit issuance.
Programme Cycle (FY26)
- Target cycle ends: March 31, 2026
- Verification period: 4 months
- Assessment phase: 3 months
- Credit issuance expected: October 2026
- Trading window: November 2026 – January 2027
This establishes an annual trading cycle.
Registration & Transparency
- A dedicated portal will be operational by March 20, 2026.
- It will allow:
- Project registration
- Participation in compliance and voluntary mechanisms
- Transparent tracking and reporting
Market Mechanism
The scheme creates a compliance carbon market where:
- Credits are tradable.
- Efficient industries can monetise surplus reductions.
- Less efficient units gain flexibility by purchasing credits instead of paying penalties.
This ensures:
- Cost-effective emission reduction
- Market-driven efficiency
- Industry-level flexibility
Pricing Framework
India has set targets keeping marginal abatement costs in mind.
- Expected carbon price: ~$10 per tonne of CO₂
- EU ETS price: Over $75 per tonne
- China’s market: Around $10 per tonne
The pricing aims to:
- Avoid excessive burden on Indian industries
- Maintain global competitiveness
- Still provide incentives for emission reduction
Balancing carbon prices is critical:
- Too low → weak emission incentive
- Too high → industrial cost pressure
International Context
India’s carbon market rollout is partly influenced by:
EU’s Carbon Border Adjustment Mechanism (CBAM)
CBAM imposes carbon taxes on imports from countries without strong carbon pricing mechanisms. A domestic carbon market helps:
- Shield Indian exports from additional carbon costs
- Demonstrate climate accountability
- Enhance trade competitiveness
Broader Significance
- First structured national carbon trading system in India
- Strengthens India’s climate policy architecture
- Aligns industrial growth with sustainability
- Encourages innovation and green technology
- Enhances India’s credibility in global climate negotiations
As sectoral coverage expands, the Indian Carbon Market is expected to become a central pillar of India’s climate strategy.
What is Carbon Credit Trading Scheme (CCTS)?
The Carbon Credit Trading Scheme (2023) provides the legal framework for:
- Functioning of the Indian Carbon Market
- Issuance and trading of Carbon Credit Certificates
- Defining compliance and offset mechanisms
The objective is to:
- Price emissions
- Encourage cleaner production
- Support India’s net-zero pathway