Carbon Markets

One accounting unit, two kinds of certificate

Carbon dioxide equivalent (CO₂e) puts different greenhouse gases on one scale. One tonne of CO₂e is the usual accounting unit.

• An allowance permits covered emissions under a trading scheme. A regulator issues it under an emissions limit.
• An offset credit records an estimated cut or removal against a project baseline.
• Both can be traded, but they are not automatically interchangeable. The scheme’s rules decide which units count for each obligation.

Good to Know

Who pays whom

• A government can auction allowances and collect the payment itself, or it may give allowances away for free.
• A carbon tax charges emissions at a set rate. It is a separate pricing tool, not a traded credit.
• Compliance markets impose legal duties on covered firms. Voluntary markets allow purchases without that legal duty, but buyers still need honest claims about what pollution remains.

Sources: World Bank carbon pricing review, ICAP.

Cap-and-trade starts with a limit

Cap-and-trade starts with an overall emissions limit. Firms receive or buy allowances, then trade them. If allowances become scarce, their price can rise, giving firms a stronger reason to cut emissions.

Good to Know

India’s version: intensity, not a cap

• Baseline-and-credit compares a project or firm’s result with a stated baseline. Better performance can earn credits.
• India’s main compliance target is emissions intensity: emissions per unit of output. It is not an economy-wide emissions cap.
• A firm can cut emissions per unit and still raise its total emissions, if output grows enough.

One law, two mechanisms

The 2022 Energy Conservation amendment enabled India’s Carbon Credit Trading Scheme (CCTS). The government notified it in June 2023. A December 2023 amendment added a voluntary Offset Mechanism beside the mandatory Compliance Mechanism.

• The Compliance Mechanism covers named industrial entities, who earn or owe certificates by beating or missing a notified emissions-intensity target.
• The Offset Mechanism lets eligible, non-obligated project developers earn certificates by proving an extra cut, avoidance, or removal against a baseline.
• Offset certificates do not automatically satisfy a firm’s compliance shortfall. Their use depends on the scheme’s detailed eligibility rules.

Good to Know

Who runs it, and how a target works

The Bureau of Energy Efficiency (BEE) administers CCTS. The central government names obligated firms and notifies their targets, measured in tonnes of CO₂e per unit of product.

• A firm below its target may earn Carbon Credit Certificates (CCCs). A firm above target must surrender eligible certificates for its shortfall.
• Accredited agencies verify reported data, and the Central Electricity Regulatory Commission regulates certificate trading.
• The earlier Perform, Achieve and Trade (PAT) programme dealt with energy savings. Relevant sectors are moving into CCTS in stages.

Sources: BEE scheme overview, Ministry of Power, February 2026.

Five steps, and none can be skipped

• Baseline. Estimate what would happen without the project.
• Additionality. Show the project adds a benefit beyond that baseline.
• Monitoring. Measure the actual result using an approved method.
• Verification. An accredited third party checks the claim.
• Registry and retirement. Issue a numbered credit, then cancel it once claimed, so one credit cannot support two claims.

Four failure modes to watch for

• Additionality. A project should not earn credits for work that would happen anyway.
• Leakage. Stopping forest loss in one area may simply shift clearing elsewhere.
• Permanence. Stored carbon may return to the air after a fire or land-use change.
• Double counting. Two buyers, or two countries, must not claim the same cut as their own.

Weak baselines can create too many credits, letting buyers claim progress without matching real cuts. Good rules also protect local land rights and share benefits fairly.

Sources: BEE safeguards, UN climate accounting guide.

Three tracks under one article

• Article 6.2 covers cooperation between countries using transferred climate outcomes, with accounting rules that address double counting.
• Article 6.4 provides a United Nations-supervised crediting mechanism.
• Article 6.8 supports cooperation without trading.

A corresponding adjustment changes national accounts when an authorised outcome moves abroad, so both countries cannot claim the same cut.

The older Clean Development Mechanism (CDM) worked under the Kyoto Protocol. Paris rules are different, so old CDM credits do not automatically become new Article 6 credits.

Sources: UN Climate Change Article 6, Kyoto Protocol.

India’s compliance market takes its first real steps

Through 2026, India’s CCTS moved from published rules toward operating obligations. BEE has notified emissions-intensity targets for the compliance sectors and continued expanding its list of approved offset methods and accredited verification agencies.

• Planned sectors include aluminium, cement, chemicals, refining, paper, steel, and textiles, with coverage and target years fixed by separate notifications.
• A promised trading date is a forecast, not proof that trades occurred. The scheme’s actual issuance and trading records sit in BEE’s own registry.

A second Article 6.2 bilateral track

In April 2026, India and South Korea signed a Memorandum of Cooperation under Paris Agreement Article 6.2, covering investment-driven mitigation projects in hard-to-abate sectors such as steel, cement, and heavy transport. This makes South Korea India’s second bilateral carbon-cooperation partner, after Japan’s Joint Crediting Mechanism.

• Article 6.2 lets two countries trade internationally transferred mitigation outcomes directly, outside any single UN-run registry.
• This shows Article 6.2 is not one fixed deal. It is an expanding network of separate government-to-government agreements, each needing its own corresponding-adjustment accounting.

The UK recognises CCTS under its carbon border tax

• The UK has listed India’s CCTS as a qualifying carbon pricing scheme under its Carbon Border Adjustment Mechanism (CBAM).
• Indian exporters can claim relief in the UK for carbon prices already paid in India. So they are not charged twice for the same emissions.
• Covered goods include steel, aluminium, fertiliser and cement. The UK CBAM starts in 2027.
• The relief depends on the carbon price actually paid in India, backed by verified evidence.

Sources: BEE framework, Mongabay India, Carbon Pulse, Free Press Journal, GOV.UK.