India’s Carbon Credit Trading Scheme

For UK businesses, this is not just an overseas policy development. India is a major manufacturing hub, a fast-growing economy, and a critical part of many UK and EU supply chains. How India regulates carbon emissions will directly affect supplier costs, procurement risk, emissions data quality, and access to low-carbon goods and services.

In plain terms, India has recognised that announcements alone will not deliver net zero. The CCTS introduces baselines, monitoring, verification, and financial consequences, ensuring emissions reductions are measured and accounted for rather than assumed.

The scheme also signals a wider global shift. Countries with large industrial bases are moving away from energy-efficiency-only programmes and soft climate commitments towards compliance-led carbon markets. UK companies trading with, sourcing from, or investing in India need to understand how this system works and what it means in practice.

What’s happening

Over the past decade, India’s corporate sector has made a growing number of public net zero and emissions reduction pledges. However, independent analysis has repeatedly highlighted a gap between ambition and delivery. A review by the Institute for Energy Economics and Financial Analysis (IEEFA) of 33 large Indian companies found that many lacked credible transition plans to support their stated targets.

In response, the Indian government introduced the Carbon Credit Trading Scheme (CCTS), which became fully operational in 2026. The scheme was enabled by the Energy Conservation (Amendment) Act, 2022 and formally notified in June 2023. It replaces the long-running Perform, Achieve, and Trade (PAT) scheme, which focused primarily on energy efficiency rather than direct carbon emissions.

Unlike its predecessor, the CCTS is designed as a national compliance carbon market. Instead of measuring energy use alone, it links carbon performance to tradable carbon credits. Companies that outperform their targets can earn Carbon Credit Certificates (CCCs), while those that miss targets must purchase credits or face penalties.

The initial phase of the scheme covers around 800 industrial installations across nine sectors, including cement, aluminium, steel, fertilisers, textiles, pulp and paper, petrochemicals, and power generation. Together, these sectors account for a significant share of India’s industrial greenhouse gas emissions.

Targets under the CCTS are set using a baseline-and-credit approach. Emissions intensity baselines are calculated using 2023–2024 data, with targets applied over three-year compliance periods and monitored annually. This requires businesses to measure, report, and verify emissions on an ongoing basis rather than treating carbon reporting as a one-off exercise.

At present, the scheme covers Scope 1 emissions (direct operational emissions) and Scope 2 emissions (purchased electricity). There is provision for future inclusion of Scope 3 value-chain emissions, which would extend requirements into supply chains and procurement.

Each Carbon Credit Certificate represents one tonne of CO₂e reduced below a set target. Credits can be traded on regulated power exchanges overseen by India’s Central Electricity Regulatory Commission (CERC). A central registry, managed by the Grid Controller of India, tracks issuance, ownership, and retirement of credits.

Governance is shared between multiple bodies. The Ministry of Power and the Ministry of Environment, Forest and Climate Change set strategic direction, while the Bureau of Energy Efficiency (BEE) oversees implementation, monitoring, and verification. This structure is intended to improve transparency, accountability, and market confidence.

Why this matters for UK businesses

For UK companies, India’s carbon market has implications in three main areas: supply chains, cost exposure, and future compliance expectations.

Many UK manufacturers, retailers, and construction firms rely on Indian suppliers for steel, cement, textiles, chemicals, and manufactured components. If those suppliers fall under the CCTS, their operating costs will increasingly reflect carbon performance. Businesses with higher emissions will either need to invest in reductions or purchase carbon credits.

Over time, these costs are likely to feed through into supplier pricing and contract terms. UK buyers should expect to see growing carbon-related price differentiation between suppliers, particularly in emissions-intensive sectors.

The scheme also raises the importance of reliable, verified emissions data. Indian suppliers participating in the CCTS must measure and report emissions against national standards. For UK businesses with Scope 3 reporting obligations, this could improve data quality — but it may also expose gaps between stated targets and actual performance.

There are also procurement and tender implications. Public sector bodies and large corporates increasingly expect suppliers to demonstrate credible carbon reduction, not just policy statements. Suppliers operating within a regulated carbon market may be better placed to evidence compliance, while others may face increased scrutiny.

For UK firms investing directly in India, carbon pricing becomes a financial consideration, not just a reputational one. Emissions reductions can generate revenue through credits, but missing targets carries a clear cost. This shifts carbon management firmly onto the balance sheet.

More broadly, the CCTS reflects a global trend. Governments are tightening climate regulation and moving towards mandatory carbon pricing and enforcement. For UK businesses, this is an early indicator of how climate policy is evolving across major economies, with direct impacts on trade, reporting, and long-term contracts.

Key facts at a glance

• India’s Carbon Credit Trading Scheme (CCTS) is its main national carbon market and became operational in 2026

• It replaces the Perform, Achieve, and Trade (PAT) scheme, shifting focus from energy efficiency to carbon emissions

• Around 800 industrial installations across nine sectors are covered in the first phase

• Targets are based on emissions intensity, using 2023–2024 data as the baseline

• Compliance periods last three years, with annual monitoring and reporting

• Carbon Credit Certificates represent one tonne of CO₂e reduced and are traded on regulated exchanges

• The scheme currently covers Scope 1 and Scope 2 emissions, with potential future inclusion of Scope 3

SBS insight

From an advisory perspective, the most important aspect of India’s Carbon Credit Trading Scheme is not the trading mechanics but the shift in expectations. Governments are increasingly unwilling to rely on voluntary net zero pledges without systems to measure, verify, and enforce performance.

For UK SMEs, the lesson is practical. Net zero commitments must be backed by credible plans, robust data, and clear governance. Where businesses rely on overseas suppliers particularly in carbon-intensive sectors they need visibility over how emissions are measured, managed, and priced.

We regularly see organisations underestimate how quickly carbon-related costs can flow through procurement, contracts, and tenders. Schemes like the CCTS turn carbon into a commercial variable rather than a distant future concern.

In our work supporting net zero planning and sustainable procurement, we help businesses understand where emissions sit in their value chain, how regulation affects cost exposure, and what this means for reporting and customer expectations. India’s carbon market is a clear example of why a practical, evidence-based approach matters.

UK companies do not need to become experts in Indian regulation, but they do need to ask the right questions of suppliers and partners:
Who is covered by the scheme? How are emissions measured and verified? What is the cost exposure if targets are missed?

You can read more about how we support businesses at our net zero services:
https://sbs.eco/net-zero

And sustainable procurement support:
https://sbs.eco/sustainable-procurement

Further reading

Institute for Energy Economics and Financial Analysis – India’s Carbon Credit Trading Scheme explained
https://www.ieefa.org/articles/indias-carbon-credit-trading-scheme-explained

Government of India, Ministry of Power – Carbon Credit Trading Scheme overview
https://powermin.gov.in/en/content/carbon-credit-trading-scheme

Bureau of Energy Efficiency – scheme governance and implementation
https://www.beeindia.gov.in/

International Energy Agency – emissions trading and carbon pricing
https://www.iea.org/reports/emissions-trading-and-carbon-pricing