The Bureau of Energy Efficiency (BEE) has released a detailed guide outlining acceptable project structures for the offset mechanism within the Carbon Credit Trading Scheme (CCTS). This scheme applies to various sectors, including renewable energy, hydrogen production, energy efficiency, waste handling, agriculture, forestry and transport.
Table: List of draft methodologies for offset mechanisms under Carbon Credit Trading Scheme
Source: Bureau of Energy Efficiency
The carbon credit market consists of two components: compliance schemes and offset schemes. Compliance schemes target obligated entities mandated by the government to reduce emissions, while offset schemes involve voluntary emission reduction efforts.
The government has, for now, identified nine sectors as obligated entities, with emission reduction targets expected to be notified by the end of the current fiscal. These targets will be applicable until 2027, with the first target period starting next fiscal. Compliance will begin in March 2026 and carbon credit certificates are expected to be issued to industries by October 2026, followed by trading.
To support the trading framework, the BEE’s draft methodologies provide clear guidelines for project developers to establish facilities that can produce tradable carbon credit certificates. As one of the largest suppliers of credits in the international voluntary carbon markets, India’s efforts to strengthen its carbon credit trading system have been significant. The country has issued over 11% of the global carbon credits as of 2023.
Article 6 of the Paris Agreement establishes a framework for international carbon markets and cooperative emission reduction efforts. A key component is the internationally transferred mitigation outcome (ITMO), a unit of carbon credit representing greenhouse gas emission reductions. For successful ITMO trading, it is essential for the participating countries to adopt standardised frameworks that ensure consistency and transparency across borders.
The Indian carbon market’s methodologies are consistent with those of the UNFCCC’s Clean Development Mechanism (CDM). In the renewable energy sector, the scope of the Indian carbon market is limited to hybrid systems with or without energy storage, excluding standalone solar and wind projects.
This approach is in line with global concerns about the integrity of renewable energy carbon credits, particularly regarding additionality. In recent years, these concerns have led to significant changes in the market. For instance, in 2020, major carbon credit standards such as Gold Standard and Verra introduced restrictions on new renewable energy projects.
More recently, the Integrity Council for the Voluntary Carbon Market (ICVCM) took a significant step by deciding in 2024 to withhold its Core Carbon Principles (CCP) label from renewable energy projects. This decision was made due to concerns about additionality and the inadequacy of existing methodologies in assessing project viability without carbon credits. The Indian carbon market’s offset mechanism methodologies have adopted similar standards, ensuring alignment with international best practices and maintaining the integrity of the market.
Compliance carbon markets differ from voluntary markets. Compliance credits, subject to stricter verification and monitoring processes, typically command higher prices than voluntary credits. Concerns about greenwashing and less rigorous verification in voluntary markets contribute to their lower prices.
Figures: Prices of carbon credit across global markets, $/mtCO2e
Source: S&P Global Platts Carbon Price Explorer
Within the voluntary market, technology-based carbon capture credits trade at a premium when compared with other standards. This price reflects the high cost of the technology and greater confidence in the additionality of emission reductions. Conversely, renewable energy credits (RECs) trade at the lowest prices, around $1 per mtCO2e, likely due to lower demand and questions surrounding their additionality in avoiding carbon emissions.
India’s carbon market is evolving with a structured approach that aligns with global best practices and addresses domestic priorities. The emphasis on hybrid renewable energy systems, rigorous verification standards, and alignment with Article 6 of the Paris Agreement indicate a clear strategy to enhance market credibility. While the compliance market targets the major energy intensive sectors, the voluntary market facilitates adoption of emerging emission reduction technologies that can potentially generate high-quality carbon credits.
However, challenges remain, including the need for broader participation from industries, stronger price signals for carbon credits, and integration with international carbon trading mechanisms. If successfully implemented, the CCTS could position India as a key player in global carbon finance, attracting investments in decarbonisation, while supporting its net-zero ambitions.
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