India Carbon Credit Trading Scheme Needs Clearer Operational Rules

India's Ministry of Power has notified the Carbon Credits Trading Scheme 2023, establishing a framework for domestic compliance and voluntary carbon markets. The notification falls short on critical operational details including eligible sectors, price discovery mechanisms, and linkages with international carbon markets.

The Carbon Credits Trading Scheme 2023 transitions India's existing energy certificate market — the Perform, Achieve and Trade scheme measured in tonnes of oil equivalent — to carbon certificates denominated in tonnes of CO2 equivalent. A National Steering Committee comprising representatives from key ministries will govern the market, with the Bureau of Energy Efficiency acting as administrator. The Grid Controller of India will manage the meta registry, and the Central Electricity Regulatory Commission will regulate trading. The eleven sectors identified include petroleum refineries, cement, steel, chlor-alkali, aluminium, thermal power and fertilisers.

The scheme is significant because it formalises India's pathway toward a domestic carbon price, a critical tool for driving emissions reductions across heavy industry. However, the Institute for Energy Economics and Financial Analysis flags that the absence of a clear timeline for market operationalisation, especially for the voluntary market segment, leaves investors and corporates without actionable guidance. The National Stock Exchange and Indian Energy Exchange have already announced plans to explore voluntary carbon trading, meaning regulatory clarity is urgently needed to prevent fragmentation.

Key unresolved questions include how the domestic carbon market will interact with India's Green Credit Programme under the Ministry of Environment, and whether carbon credits from international voluntary markets will run parallel to domestic certificates. Price discovery methodology remains undefined, a significant risk given that overly high buying prices could deter MSMEs while low selling prices would undermine genuine emissions reductions. Policymakers must address consumer profiling, cross-ministerial coordination, and robust monitoring and verification before the market can function effectively.

Key figure — 278 million carbon credits issued by India in the voluntary carbon market between 2010 and 2022, representing 17% of global supply.