To Whom Is the Carbon Credit Concept Applicable?

As the climate change mitigation becomes a global priority, the carbon credit mechanism has emerged as a key market-based tool to reduce the greenhouse gas (GHG) emissions. While carbon credits are widely discussed, there is often confusion about who exactly the carbon credit system applies to. Contrary to the common perception, carbon credits are not limited to large polluting industries alone. Instead, they apply to a wide range of stakeholders across mandatory (compliance-based) and voluntary carbon markets.

This blog will explains to whom the carbon credit concept is applicable, covering obligated entities, voluntary participants, project developers, institutions and individuals, while aligning with officially recognised carbon market frameworks, including the emerging Indian carbon market.

Understanding the Applicability of Carbon Credits

The carbon credit concept applies to any entity that either: -

• Emits greenhouse gases, or
• Reduces, avoids or removes greenhouse gas emissions through approved activities

Participation may be mandatory or voluntary, it depends on the applicable regulatory framework, sector and jurisdiction.

1. Governments and Regulatory Authorities

Governments play a foundational role in the carbon credit ecosystem. The carbon credit concept applies to them primarily as regulators and facilitators, not as credit buyers or sellers.

Governments are responsible for: -

• Setting national emission reduction targets
• Establishing carbon trading and compliance frameworks
• Notifying eligible sectors and emission limits
• Regulating issuance, trading and surrender of carbon credits
• Monitoring, reporting and enforcement

At the international level, governments also engage in carbon market mechanisms under global climate agreements. Therefore, carbon credits are fundamentally applicable to governments as policy-makers and oversight authorities.

2. Large Industries and Energy-Intensive Sectors (Mandatory Applicability)

The most direct and legally binding applicability of carbon credits is too large, energy-intensive industries covered under emission trading or carbon compliance schemes.

These sectors typically include: -

• Power generation companies
• Cement and steel manufacturers
• Oil and gas companies
• Fertiliser and chemical industries
• Aluminium and metal producers
• Aviation and shipping sectors (in selected jurisdictions)

For all the above entities, participation is mandatory where it’s notified. If they exceed the prescribed emission intensity or any emission caps, they must purchase carbon credits to meet their prescribed compliance obligations. Conversely, the entities that perform better than targets may earn or sell credits.

3. Manufacturing and Industrial Units (Beyond Core Obligated Sectors)

Medium and large manufacturing units that are not immediately classified as obligated entities are still increasingly impacted by the carbon frameworks through: -

• Supply-chain emission requirements
• ESG and sustainability disclosures
• Buyer-driven decarbonisation mandates
• Climate-linked financing conditions

While such entities may not yet face statutory emission caps, carbon credits become applicable to them voluntarily as an emission-offset or risk-management tool.

4. Carbon Credit Project Developers (Credit Generators)

Carbon credits are not applicable only to emitters. They are equally applicable to entities that generate emission reductions or removals.

Carbon credit project developers include: -

• Renewable energy producers (solar, wind, biomass)
• Forestry, afforestation and reforestation project owners
• Waste management, landfill gas and biogas operators
• Methane capture and industrial efficiency projects
• Agriculture and soil carbon initiatives

These entities implement approved projects, undergo verification and earn the carbon credits, which can be traded in the carbon markets. For them, carbon credits represent a commercial asset and revenue stream.

5. Small and Medium Enterprises (SMEs)

Small and Medium Enterprises are generally not subject to mandatory compliance obligations under carbon trading schemes. However, carbon credits are increasingly applicable to SMEs on a voluntary basis due to: -

• ESG-linked funding and lending requirements
• Export market sustainability standards
• Supply-chain decarbonisation pressure from the large corporates
• Voluntary net-zero or carbon-neutral commitments

SMEs may participate by: -

• Purchasing carbon credits to offset emissions, or
• Developing eligible projects to generate credits where feasible.

6. Multinational Companies and Export-Oriented Businesses

For multinational corporations and exporters, carbon credits are often a strategic necessity rather than a regulatory formality.

Carbon credits apply to such entities for: -

• Offsetting unavoidable operational and the supply-chain emissions
• Meeting global ESG and sustainability benchmarks
• Aligning with climate-linked trade measures and buyer requirements
• Maintaining access to the environmentally conscious international markets

In many global value chains, carbon credit usage supports the elements of competitiveness and compliance with sustainability expectations.

7. Financial Institutions and Investors

Financial institutions are generally not obligated entities under carbon compliance mechanisms. However, carbon credits apply to them in several indirect but significant ways: -

• As investment and trading instruments
• As components of green finance and climate funds
• As risk-management and portfolio-decarbonisation tools

Many banks and financial institutions also voluntarily offset their operational emissions through carbon credit purchases to meet internal sustainability goals.

8. Public Sector Undertakings and Government Bodies

Public sector undertakings (PSUs) and the government-owned entities operating in sectors such as energy, transport, infrastructure and utilities are increasingly subject to carbon accounting and climate performance expectations.

Carbon credits apply to them for: -

• Supporting national climate commitments
• Offsetting emissions from the large public infrastructure projects
• Demonstrating leadership in sustainability and climate governance

Where notified, PSUs may also fall within mandatory compliance frameworks.

9. Individuals and Households (Voluntary Applicability Only)

Carbon credits are also applicable to individuals, purely on a voluntary basis. Individuals may purchase the carbon credits to offset emissions arising from: -

• Air travel
• Personal vehicle usage
• Household energy consumption
• Events or lifestyle-related activities

Individuals are not part of regulated compliance carbon markets, but their voluntary participation reflects growing environmental awareness and climate responsibility.

10. Applicability in the Indian Context

In India, the carbon credit concept currently applies to: -

• Obligated entities in the energy-intensive sectors are under compliance mechanisms
• Carbon credit project developers generating approved emission reductions
• Corporates subject to the ESG and BRSR sustainability reporting
• Exporters and multinational companies facing global climate standards
• Voluntary participants pursuing carbon neutrality goals

With the gradual implementation of a regulated domestic carbon market, applicability is expected to expand across additional sectors in a phased manner.

Key Takeaway

The carbon credit concept is not limited to polluters alone. It applies to: -

• Entities that emit greenhouse gases
• Entities that reduce or remove emissions
• Regulators, project developers, investors and voluntary participants

In essence, any stakeholder connected to emissions or climate action can participate in the carbon credit ecosystem, either mandatorily or voluntarily.

Conclusion

Carbon credits are a flexible and inclusive climate mechanism applicable to a broad spectrum of stakeholders, from governments and large industries to project developers, SMEs, financial institutions and individuals. Whether participation is mandatory or voluntary, carbon credits play an essential role in reducing emissions, promoting various sustainable norms and supporting the national and global climate goals. As rules and systems continue to develop, especially in India, the use of carbon credits is likely to increase, making them an important part of long-term environmental and business planning.