Indian Regulations for Carbon Credits: Legal Framework, Compliance, and Trading Mechanism

India is among the world’s fastest-growing economies and a remarkable contributor to global greenhouse gas (GHG) emissions. Recognising the need to balance economic growth with environmental sustainability, the Government of India has introduced a structured legal and regulatory framework to promote emission reduction and low-carbon development, including a domestically regulated carbon credit trading system.

India’s carbon credit regulations aim to incentivise emission reductions, encourage clean energy adoption, and support the country’s international climate commitments through a transparent and regulated market mechanism.

Background of Carbon Credit Regulation in India

The concept of carbon credits in India evolved through international mechanisms such as the Clean Development Mechanism (CDM) under the Kyoto Protocol. Indian entities participated in CDM projects, earning Certified Emission Reductions (CERs) and trading them in global carbon markets.

However, the absence of a domestic regulatory framework limited India’s long-term policy control. To address this gap, the Government introduced legislative amendments and policy instruments to regulate carbon credit generation and trading within India.

Legal Basis: Energy Conservation (Amendment) Act, 2022

The Energy Conservation (Amendment) Act, 2022, forms the statutory foundation for carbon credit regulation in India. It empowers the Central Government to establish a Carbon Credit Trading Scheme, issue Carbon Credit Certificates (CCCs), designate regulatory authorities, and prescribe compliance and enforcement mechanisms.

This amendment marks a transition from international voluntary mechanisms to a domestically regulated carbon market.

Indian Carbon Market (ICM)

The Government introduced the Indian Carbon Market (ICM) as the national framework for carbon credit generation and trading. The market aims to enable cost-effective emission reductions, promote clean and energy-efficient technologies, support India’s climate mitigation objectives, and establish a transparent and regulated carbon trading ecosystem.

The ICM is being implemented in a phased manner, with sectoral coverage and operational rules expanding progressively.

Carbon Credit Trading Scheme (CCTS)

The Carbon Credit Trading Scheme (CCTS), notified in June 2023, serves as the core operational framework of the Indian Carbon Market. It introduces Carbon Credit Certificates representing one tonne of carbon dioxide equivalent (tCO₂e) reduced, removed, or avoided, and covers both compliance-based and voluntary market mechanisms.

Entities exceeding emission limits may purchase carbon credits to meet compliance obligations, while entities achieving verified emission reductions may earn and trade credits.

Institutional and Regulatory Authorities

The governance framework includes the National Steering Committee for the Indian Carbon Market, which provides policy oversight and alignment with national climate goals. The Bureau of Energy Efficiency acts as the administrator of the Carbon Credit Trading Scheme, overseeing implementation, monitoring, compliance, and issuance of certificates. A national carbon credit registry and authorised market platforms are being developed for secure trading and record-keeping.

Compliance and Voluntary Carbon Markets

The framework recognises a compliance carbon market applicable to designated energy-intensive sectors with mandatory emission intensity targets and penalties for non-compliance. It also supports a voluntary carbon market that allows non-obligated entities and project developers to generate and purchase credits to meet ESG goals and net-zero strategies.

This dual structure ensures regulatory discipline while maintaining flexibility for voluntary participation.

Sectoral Coverage and Emission Targets

Emission intensity targets are being notified on a phased basis for energy-intensive sectors, including power generation, cement and steel, aluminium and metal production, fertilisers and chemicals, and pulp and paper. These targets are reviewed periodically based on policy priorities and technological advancements.

Monitoring, Reporting and Verification (MRV)

Monitoring, Reporting, and Verification (MRV) mechanisms ensure emissions are measured using approved methodologies, independently verified by accredited agencies, and recorded through digital registry systems to prevent double-counting and ensure market integrity.

Alignment with International Climate Commitments

India’s carbon credit framework aligns with its Nationally Determined Contributions under the Paris Agreement, the long-term objective of achieving net-zero emissions by 2070, and potential engagement with Article 6 international carbon market mechanisms, subject to regulatory safeguards.

Penalties and Enforcement

Failure to comply with emission norms, reporting obligations, or scheme requirements may result in monetary penalties, regulatory or administrative action, or suspension from participation in the carbon market, as enforcement provisions continue to evolve.

Benefits of Carbon Credit Regulation in India

The regulated framework enables cost-effective emission reductions, accelerates the transition to clean energy, strengthens ESG compliance, attracts green investment, and enhances India’s national climate governance and leadership.

Conclusion

India’s carbon credit regulatory framework represents a major milestone in climate governance. Built on legislative reforms and a structured market mechanism, it aligns economic growth with environmental sustainability and positions carbon credits as a key tool in India’s long-term climate mitigation strategy.