India's Carbon Credit Trading Scheme marks a shift from energy-efficiency trading to carbon pricing. Examine its design and the challenges in putting it into practice.

Under the Perform, Achieve and Trade (PAT) scheme, industries traded energy-saving certificates. The Carbon Credit Trading Scheme (CCTS), 2023, notified under the Energy Conservation (Amendment) Act, 2022, instead prices greenhouse-gas (GHG) emissions. Its design is sound; its credibility depends on implementation.

Design of the CCTS

• Baseline-and-credit, intensity-based: firms get GHG emission-intensity targets (tCO2e per unit of output), not absolute caps, suiting a growing economy [2].
• Phased coverage: 282 entities in aluminium, cement, chlor-alkali and pulp & paper (October 2025), plus 208 in refineries, petrochemicals, textiles and secondary aluminium (January 2026) [2].
• Two tracks: a compliance mechanism for obligated entities; a voluntary offset mechanism for others [1].
• Institutions: National Steering Committee (Power and Environment ministries), BEE as administrator, Grid-India as registry [1]; CERC regulates trading.
• Enforcement: firms beating targets earn tradable Carbon Credit Certificates; those missing them must buy certificates or pay environmental compensation at twice the average price [3].

Challenges in putting it into practice

• Oversupply (PAT legacy): PAT issued about 103 lakh certificates against a 52-lakh purchase obligation, and trades stayed at the floor price [4]. Lenient targets could repeat this.
• Weak deterrence: PAT non-compliance rose from 9% (Cycle I) to 56% (Cycle II); a 2× penalty is mild against 5–10× in China's ETS [4].
• Narrow coverage: thermal power has not been moved into the CCTS [1], though it emits nearly 40% of India's GHGs; initial sectors cover only about 10% [4].
• MRV credibility: entities self-monitor and appoint their own verifiers; BEE can re-check only after the compliance period [4].
• Delays: PAT cycles ended years behind schedule [4]; certificate issuance and exchange trading are yet to be tested at scale.
• External recognition: how far the EU's CBAM will credit CCTS prices paid by exporters is unsettled; intensity targets and modest ambition may be read narrowly [5].

The CCTS gives India a development-sensitive carbon price, but surplus credits and self-verified data will not change behaviour. Tightening baselines on a published path, scheduling power-sector entry, escalating penalties for repeat offenders and rotating verifiers [4] would make it a credible tool for India's emission-intensity NDC and 2070 net-zero goal, consistent with common but differentiated responsibilities.