The Carbon Credit Trading Scheme is India's compliance carbon market. It sets greenhouse gas emission intensity targets, measured as emissions per unit of output, for large industrial facilities in notified sectors. Facilities that beat their target earn tradable certificates. Those that miss it must buy and surrender certificates or pay a penalty.
Two carbon markets, and only one of them compels anyone
Most confusion about carbon credits in India comes from treating one market as though it were the other.
The voluntary market is the one most people have encountered. A company decides it wants to offset its emissions, buys credits from a project developer, and retires them. Nothing legally requires the purchase. Demand depends on corporate intent, which can be withdrawn at any time and frequently is.
The compliance market is different in one decisive respect: the buyer has no choice. India’s Carbon Credit Trading Scheme is that market. A facility inside its scope either meets its target, buys certificates to cover the gap, or pays a penalty. Demand is created by law rather than by sentiment.
For anyone deciding where to point a business, this distinction matters more than the price. A market where buyers are compelled behaves fundamentally differently from one where they are persuaded.
The mechanism: intensity, not a cap
The CCTS uses a baseline and credit approach built on greenhouse gas emission intensity, expressed as tonnes of carbon dioxide equivalent per unit of product.
Each obligated facility is given an intensity target. At the end of a compliance period, its actual intensity is compared against that target. A facility that comes in below its target has over performed and earns carbon credit certificates it can sell. A facility above its target must buy certificates from the market and surrender them to cover the shortfall, or face a statutory financial penalty.
That last sentence is the entire economic engine. The penalty sets a ceiling on what a certificate is worth, and the cost of actually reducing emissions sets a floor. The market price settles between them.
Why intensity rather than an absolute cap
This is the design choice people most often criticise, and it is worth understanding rather than dismissing.
An absolute cap fixes total emissions. An intensity target fixes emissions per unit of output. Under an intensity target, a facility that halves its emissions per tonne of steel while tripling its steel production has met its obligation and increased its total emissions.
For a country whose industrial output is expected to grow substantially, an absolute cap would function as a cap on production. An intensity target instead pushes every unit of output to get cleaner without deciding how many units there should be. That is a genuine policy trade off rather than a loophole, and the honest summary is that it drives efficiency rather than absolute reduction.
Who is covered
The scheme applies to notified energy intensive sectors. Greenhouse gas emission intensity targets have been notified across nine sectors: aluminium, chlor alkali, cement, fertiliser, iron and steel, pulp and paper, petrochemicals, petroleum refining, and textiles.
Reported coverage is in the order of several hundred obligated entities, with the first compliance filings and the first trades of compliance certificates falling in 2026. Coverage lists and deadlines are administrative and change, so confirm the current position against the notification rather than against any secondary summary, including this one.
What this means if you produce credits
Three consequences that matter for a project developer, and they are not the ones usually emphasised.
The compliance market and the voluntary market are not one pool. A certificate created under the compliance mechanism serves an obligated entity’s legal requirement. A voluntary market credit generally does not, unless the rules specifically permit it. Before designing a project around expected demand, establish which market its output can actually be sold into, because that determines who your buyer is and what they are willing to pay.
Land based projects sit outside the obligated sectors. Every one of the nine notified sectors is industrial. A restoration or biochar project does not receive an intensity target, so its route into the Indian market is the voluntary offset mechanism rather than the compliance obligation. This is worth stating plainly, because a great deal of commentary implies land projects will be absorbed into compliance demand, and that is not what the structure currently does.
International demand may matter more than domestic. For a durable removal product, the buyers paying the highest prices are corporations meeting their own net zero commitments, and they are largely outside India. India’s compliance market is important context, and for many land based projects it will not be the first customer.
The reason this scheme exists at all
A carbon credit is a mechanism for making an unsellable thing sellable. Nobody can be charged for cleaner air, because nobody can be excluded from breathing it. A credit converts the act of reducing emissions into a certificate that a specific party has a specific reason to buy, and a compliance scheme like the CCTS supplies that reason by law.
That is the same logic our own thesis is built on, and it is why we treat the question of who is obliged to pay as more important than the question of how much they might pay.
Compliance schemes are administrative and change frequently. Recheck sector coverage, target values and deadlines against the current official notification before relying on this page commercially.
Related questions
- What is the difference between the CCTS compliance market and the voluntary carbon market?
- In the compliance market, notified industrial entities are legally required to meet an emission intensity target and face a penalty if they do not, so demand for certificates comes from a legal obligation. In the voluntary market, buyers purchase credits because they have chosen to, usually to meet a self declared target, and no law compels the purchase.
- Does the CCTS cap total emissions in India?
- No. It sets emission intensity targets, meaning emissions per unit of product. A facility that reduces its intensity while increasing production can meet its target with higher total emissions. This is a deliberate design choice for an economy that expects industrial output to grow.
- Can a project outside the notified sectors participate?
- The scheme provides for a voluntary offset mechanism alongside the compliance mechanism, which is the route through which non obligated entities can register projects and generate credits. The eligible project categories and methodologies for that route are defined separately from the intensity targets.