The Carbon Credit Trading Scheme (CCTS) is a national market-based mechanism, notified by the Government of India in June 2023, designed to establish the Indian Carbon Market (ICM) and drive industrial decarbonization. Its origin lies in the need to fulfill India's Nationally Determined Contributions (NDCs) under the Paris Agreement and incentivize emission cuts. The legal basis for the CCTS was provided by the Energy Conservation (Amendment) Act, 2022, which empowered the Central Government to specify a carbon trading scheme and issue Carbon Credit Certificates (CCCs). This amendment solved the problem of the previous system, the Perform, Achieve and Trade (PAT) scheme, which focused only on energy efficiency and not directly on greenhouse gas (GHG) emissions.
The CCTS works through a dual-track framework: a mandatory Compliance Mechanism and a Voluntary Offset Mechanism. The Compliance Mechanism is an intensity-based baseline-and-credit system where obligated entities, such as those in the cement, petroleum refining, and textile sectors, are assigned binding GHG emission intensity targets. Entities that outperform their targets earn CCCs, denominated in 1 tonne of CO₂ equivalent, which they can sell. Conversely, entities that fall short must purchase and surrender an equivalent number of CCCs to meet compliance. The scheme is governed by the National Steering Committee for the Indian Carbon Market (NSCICM), co-chaired by the Ministry of Power and the Ministry of Environment, Forest and Climate Change (MoEFCC), with the Bureau of Energy Efficiency (BEE) acting as the chief administrator. The CCTS is a gradual transition from the PAT scheme, absorbing its industrial units and shifting their targets from energy consumption to carbon emission intensity benchmarks. Detailed regulations for the compliance mechanism were adopted in July 2024.