Carbon Pricing in India isn’t just an idea anymore, it’s becoming a full-fledged policy framework. From trading emissions credits to legally backed climate programs, the country is laying the groundwork for a national carbon market. Here’s what that actually means, how it works, and why it matters for India’s future.
First, What Is Carbon Pricing?
At its core, carbon pricing makes polluters pay. Emit a tonne of CO₂, and you’re assigned a price, either through a tax or a market-driven system like Emissions Trading. The point isn’t to punish. It’s to nudge the economy toward cleaner energy, smarter production, and more efficient use of resources.
When markets work properly, carbon pricing becomes a powerful lever: companies that cut emissions benefit financially. Those that don’t, pay up.
How Carbon Pricing in India Is Taking Shape
India’s not just dabbling with the idea. It’s building a full ecosystem. The centrepiece is the Carbon Credit Trading Scheme (CCTS), launched in July 2024. This lays the foundation for the Indian Carbon Market (ICM), a national, regulated platform where companies can trade emission credits.
But here’s what makes India’s approach different: it’s starting with a rate-based Emissions Trading System (ETS). Unlike cap-and-trade, which sets an absolute limit on emissions, a rate-based system focuses on emissions intensity, how much you’re emitting per unit of output.
Why does this matter? Because India is still growing. A rate-based ETS allows flexibility for industries to scale, while still pushing them to decarbonize.
How the Carbon Credit Trading Scheme Works
The CCTS will first apply to nine energy-intensive sectors, think steel, cement, aluminium, power, and similar heavy industries. Companies that beat their emissions intensity benchmarks can earn credits. Those that fall short must buy them. It’s that simple.
What’s also in motion:
Voluntary offsets: For sectors outside ETS, like agriculture or afforestation, India is building a parallel carbon crediting system.
Crediting methodologies: As of March 2025, India approved eight methodologies for generating credits, including renewable energy, green hydrogen, and mangrove reforestation.
Transition from PAT: The older Perform, Achieve, and Trade scheme is being folded into the new carbon market system over 2025.
How Does India Compare Globally?
Let’s zoom out for a moment. Compared to countries like China or Brazil, carbon pricing in Indiafollows a distinct path that aligns with its growth priorities.
India is keeping pace with its peers—but in its own way. Rather than capping total emissions outright, it’s tying performance to output. That’s more aligned with its development needs.
Why Voluntary Markets Matter
Not every sector will fall under the ETS. That’s where voluntary carbon markets come in. India’s working on a crediting system that incentivizes climate-positive actions in sectors like:
Clean cooking
Organic farming
Mangrove restoration
Green hydrogen
The goal? Mobilize private capital. Support climate-friendly projects. And build a robust, transparent carbon credit registry.
Legal and Policy Muscle Behind It
This shift isn’t happening in isolation. A few key laws and missions are backing it:
Energy Conservation (Amendment) Act, 2022 – Gave legal authority to create and regulate India’s carbon market.
National Green Hydrogen Mission – Backed by crediting rules for hydrogen projects. India aims to produce 5 million metric tonnes of green hydrogen annually by 2030.
Perform, Achieve, and Trade (PAT) – Since 2012, it helped reduce emissions intensity in key sectors by 15–25%. Now it’s being integrated into the broader carbon market.
Renewable Energy Targets – India has committed to installing 500 GW of non-fossil fuel capacity by 2030. Carbon pricing will help accelerate that transition.
Government Infrastructure: Who’s Running the Show?
To make this work, India set up multiple layers of oversight and implementation.
1. Bureau of Energy Efficiency (BEE)
The BEE, under the Ministry of Power, is the main technical and regulatory authority. It develops rules, verifies emissions data, and issues credits.
2. National Steering Committee on Indian Carbon Market (NSCICM)
This high-level committee includes ministry officials, state reps, and industry experts. It sets targets, recommends procedures, and monitors market function.
Mission LiFE and the Green Credit Program
Carbon pricing isn’t just about factories and smokestacks. It’s also about people. That’s where Mission LiFE and the Green Credit Program come in.
Mission LiFE encourages sustainable behaviour—cutting plastic use, conserving energy, composting, and more. The goal? One billion people taking climate action by 2028.
Green Credit Program (GCP) offers credits for voluntary tree plantation on degraded forest land. Verified credits are tracked digitally and awarded after audits.
Together, these programs make the carbon economy more participatory, not just regulatory.
What Comes Next?
India’s carbon market isn’t fully operational yet—but the scaffolding is up. In the next 12–18 months, expect:
Trading to begin in the nine ETS sectors.
Expansion of voluntary methodologies and participants.
Clearer rules for trading, certification, and reporting.
Stronger digital platforms for verification and transparency.
There’s also a global dimension. With instruments like the EU’s Carbon Border Adjustment Mechanism (CBAM) looming, India’s push toward carbon pricing isn’t just climate policy—it’s economic self-defence.
Bottom Line
India is building a carbon pricing system that fits its economic and climate realities. It won’t look like Europe’s or California’s—and that’s intentional. By focusing on emissions intensity, supporting voluntary action, and gradually expanding participation, India is designing a carbon market that’s flexible, scalable, and built for the long haul. The evolution of carbon pricing in India will be closely watched—by domestic industries, international investors, and regulators alike.
The tools are in place. The incentives are real. And for businesses, the message is clear: start decarbonizing—or start paying.
Want to understand what carbon pricing means for your business or sector? Talk to the climate experts at Sprih. Whether you’re navigating compliance, exploring carbon credits, or just figuring out where to start—we’re here to help you move from intention to impact.
FAQs
What is carbon pricing in India?
Carbon pricing in India refers to a policy approach that assigns a cost to greenhouse gas emissions. It includes market-based mechanisms like the Carbon Credit Trading Scheme (CCTS), which incentivizes industries to reduce their emissions by making pollution financially accountable.
How does India’s Carbon Credit Trading Scheme (CCTS) work?
The CCTS applies to nine energy-intensive sectors. Companies are assigned emissions intensity benchmarks. If they perform better than their target, they earn tradable carbon credits. If they underperform, they must buy credits to cover the gap—creating a financial incentive to reduce emissions.
What’s the difference between India’s rate-based ETS and cap-and-trade systems?
India’s rate-based Emissions Trading System (ETS) focuses on emissions per unit of output, offering flexibility for industries that are still growing. Cap-and-trade systems, like those in the EU, set a hard limit on total emissions. India’s approach aligns better with its development goals.
What role do voluntary carbon markets play in India?
Voluntary carbon markets in India support sectors not covered by the ETS—like agriculture, forestry, and clean cooking. These markets allow private actors to earn or buy carbon credits for verified climate-positive projects, helping scale climate finance beyond regulated industries.
Who oversees carbon pricing and carbon markets in India?
The Bureau of Energy Efficiency (BEE) handles technical regulation and credit issuance. The National Steering Committee on Indian Carbon Market (NSCICM) provides high-level oversight, while missions like LiFE and programs like the Green Credit Program expand participation beyond industry.
