From Carbon Pricing to Competitiveness: The Road Ahead for India’s CCTS

India’s carbon market has recently seen several positive developments. Internationally, it has earned a place at the global trade table, with the UK including India’s Carbon Credit Trading Scheme (CCTS) on its indicative list of overseas carbon-pricing schemes eligible for relief under its Carbon Border Adjustment Mechanism (CBAM).

Domestically, in mid-October 2026, the Bureau of Energy Efficiency (BEE) empanelled 18 Accredited Carbon Verification Agencies (ACVAs) to strengthen emissions verification and initiated the development of procedures for Carbon Credit Certificate (CCC) transactions. In August 2026, BEE also published project documentation under the Offset Mechanism.

These steps are important for operationalising the compliance and offset mechanisms and strengthening measurement, reporting and verification (MRV) under the CCTS framework. They also establish the institutional foundations of a functioning carbon market. However, the scheme’s success will depend less on the expansion of regulatory coverage and more on the quality of implementation: credible verification, timely issuance of certificates, and the emergence of transparent and liquid trading. As a major industrial economy, India  just sustains growth while reducing carbon intensity of production, CCTS introduced in 2023, represents a significant step in this direction.

The scheme’s regulatory architecture has evolved considerably. Beginning with the first notification, S.O. 2825(E) of 28 June 2023, successive amendments and Gazette notifications have introduced an offset mechanism, entity-level emissions-intensity targets and a growing list of covered sectors. The October 2025 notification covers 282 obligated entities across four sectors: aluminium, cement, chlor-alkali, and pulp and paper. The January 2026 notification adds 208 obligated entities through the Second Schedule of the CCTS across four additional sectors: secondary aluminium, petroleum refining, petrochemicals and textiles. The September 2026 notification further revises the previously notified targets for petroleum-refinery and textile entities through amendments to the Second Schedule.

Coverage, however, is only the starting point. The effectiveness of a carbon market rests on credible emissions measurement, stringent targets, efficient trading and meaningful incentives for technological change. Three issues deserve particular attention: the credibility of measurement and verification, the difference between emissions intensity and absolute emissions, and the efficiency of the market itself.

Measurement and verification come first. The empanelment of verification agencies and the establishment of consistent standards across agencies and sectors are necessary for an efficient carbon market. The CCTS is administered through several bodies, with more than one ministry responsible for its implementation. The Ministry of Power notified the scheme under the Energy Conservation Act, 2001, while the Ministry of Environment, Forest and Climate Change (MoEFCC) notified targets under the Greenhouse Gases Emission Intensity Target Rules.

The Ministry of Power’s initial notification created a multi-institutional structure. The National Steering Committee for the Indian Carbon Market provides overall governance and oversight, BEE acts as the market administrator, Grid Controller of India Limited serves as the registry, and the Central Electricity Regulatory Commission regulates carbon-credit trading. The framework also provides for accredited verification agencies, technical committees and participation by power exchanges.

Each link in this institutional chain depends on the preceding one: targets set by one ministry are verified under procedures established by another body, recorded by a third, and traded under rules regulated by a fourth. Delays or inconsistencies at any stage weaken the price signal faced by every participant.

The original notification centres on the compliance mechanism. It provides for identifying covered sectors and obligated entities, determining greenhouse-gas emissions-intensity targets, and issuing or requiring the purchase of CCCs according to each entity’s performance against its target. Entities that outperform their targets may receive certificates, while those that fall short must purchase certificates to cover the shortfall.

Subsequent notifications have widened the scheme’s scope. S.O. 5369(E) of 19 December 2023, for example, introduced an offset mechanism that allows non-obligated entities to register projects involving emissions reduction, removal or avoidance and to seek certificates. This mechanism broadens participation beyond industries covered by mandatory obligations. Its integrity, however, depends on credible baselines, additionally, transparent MRV, and safeguards against double counting. Without these protections, confidence in the wider market could erode.

The second issue is the scheme’s reliance on intensity targets rather than absolute emissions ceilings. Intensity targets allow firms to expand output while improving emissions efficiency. However, improvements in emissions intensity do not necessarily reduce aggregate emissions. A facility whose output rises by 20 per cent while its emissions intensity falls by 10 per cent will still emit approximately 8 per cent more because it is producing more units. Entities must therefore consider output and emissions together during the planning process.

The third issue is whether trading will work as intended. In principle, trading produces efficiency gains because firms with lower marginal abatement costs can undertake greater emissions reductions, while firms facing higher costs can purchase credits. In practice, the market requires adequate liquidity, transparent price discovery, credible verification and a sufficient supply of high-quality credits.

Successive amendments indicate that the framework is still evolving and that setting obligations across heterogeneous firms is complex. Periodic revisions may be necessary to improve data quality and refine target-setting methodologies. At the same time, regulatory predictability is essential for encouraging long-term investment.

These domestic questions are increasingly connected to international competitiveness. Energy-intensive sectors such as cement, steel and aluminium contribute to economic growth but face growing exposure to international environmental standards and carbon-related trade measures because of their high emissions. The CCTS could encourage manufacturers to improve efficiency, invest in cleaner technologies and compete in markets with stricter environmental requirements.

Once the UK CBAM takes effect on 1 January 2027, this connection becomes particularly important. Although the CCTS and CBAM differ in their scope, methodology and implementation, both illustrate the growing intersection between climate policy and international trade. For exporters, a credible domestic carbon price is no longer merely a compliance cost. It can become a competitive asset because carbon already priced domestically may not need to be priced again at the border.There are also differences in emissions coverage. For aluminium and steel, the CCTS currently counts electricity-related emissions, whereas CBAM covers a broader range of direct emissions. The CCTS will therefore need greater compatibility with CBAM’s accounting requirements

Compliance may nevertheless prove difficult because India’s carbon market is less sophisticated than the European market. Policymakers will have a vital role in ensuring that the transition does not erode manufacturing competitiveness. Predictable targets, access to suitable technologies and appropriate financing will be essential.

Going forward, the scheme would benefit from greater transparency in the methodologies used to set entity-level targets, stronger MRV arrangements, credible safeguards for the offset mechanism, transparent carbon-credit pricing and sufficient market liquidity. Policymakers should also monitor improvements in emissions intensity alongside changes in absolute emissions, particularly in rapidly expanding sectors. Integrating carbon-market implementation with India’s broader industrial, energy and trade policies would help align decarbonisation with long-term economic development. The challenge is to construct a carbon market that supports industrial growth while delivering genuine emissions reductions. Achieving this objective will require predictable regulation, effective institutional coordination and credible implementation.

The central question is no longer simply how many firms or sectors the CCTS covers, but whether it can change their investment and production decisions.