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4 August 2025

India's New Carbon Credit Trading Platform: MoEFCC's June 2025 Notification Explained

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India has taken a landmark step in its climate policy with the operationalisation of its domestic carbon market, following the Ministry of Environment, Forest and Climate Change's (MoEFCC) June 2025 notification.
India Environment

A Transformational Step and Key Takeaways for Corporates Looking to Monetize Sustainability Efforts

India has taken a landmark step in its climate policy with the operationalisation of its domestic carbon market, following the Ministry of Environment, Forest and Climate Change's (MoEFCC) June 2025 notification. This move marks a significant transition from voluntary carbon offset initiatives to a legally binding, market-driven framework for emissions reduction. The new Carbon Credit Trading Scheme (CCTS) aims to accelerate India's progress toward its Paris Agreement commitments and the Net Zero 2070 target by embedding sustainability into the core of industrial operations. It marks a critical pivot from energy-efficiency trading under the Perform, Achieve & Trade (PAT) Scheme to a more comprehensive, compliance-based carbon market.

The Legal Framework and the June 2025 Notification

The new carbon market is underpinned by the Environment (Protection) Act, 1986 (EPA Act, 1986) and the Energy Conservation Act, 2001. The June 2025 draft notification, released for public consultation, has been issued under Sections 3, 6, and 25 of the EPA Act and builds upon the Carbon Credit Trading Scheme, 2023, notified under Section 14(w) of the Energy Conservation Act, 2001, which provides detailed operational rules for the CCTS. It builds upon the Energy Conservation (Amendment) Act, 2022, and mandates that select industries adhere to sector-specific Greenhouse Gas Emission Intensity (GEI), defined as tonnes of CO₂ equivalent per unit of output targets. These targets are legally enforceable and measured as emissions per unit of output, such as tonnes of CO₂ equivalent per product. The notification also introduces a compliance mechanism wherein entities that fail to meet their GEI targets face financial penalties under the EPA Act, 1986. The Schedule to the draft Rules lists over 400 obligated entities across major emitting sectors, including aluminium, steel, cement, petroleum refining, petrochemicals, textiles, and pulp and paper. The notification has been issued underscoring the government's commitment to transparency and stakeholder engagement.

Institutional Structure

The CCTS is governed by a multi-layered regulatory framework. The MoEFCC sets the national climate strategy, designates covered entities, and notifies targets. The Ministry of Power (MoP) recommends greenhouse gas targets and oversees national energy policy. The Bureau of Energy Efficiency (BEE) acts as the scheme administrator, developing technical standards, setting targets, and issuing Carbon Credit Certificates (CCCs). The Grid Controller of India (GCI) manages the carbon market registry and tracks credits, while the Central Electricity Regulatory Commission (CERC) regulates trading and ensures market integrity. Oversight is provided by the National Steering Committee for Indian Carbon Market (NSCICM), which monitors the overall framework.

Mechanism of Carbon Credit Trading

India's carbon market operates on an emission intensity-based trading mechanism rather than an absolute cap-and-trade model. Obligated entities are assigned GEI targets based on historical emissions per unit of output on their historical emissions and sectoral benchmarks. These entities must monitor their emissions using direct measurement or material/fuel tracking, report annually, and undergo third-party verification. Entities that outperform their targets generate Carbon Credit Certificates, which can be sold through electronic trading platforms such as power exchanges. Entities that fail to meet targets must purchase CCCs or face penalties. Notably, CCCs are not classified as financial instruments at this stage, focusing on environmental compliance rather than speculative trading.

Market Participants and Compliance Obligations

The June 2025 draft notification, released for public consultation, lists more than 400 obligated entities across sectors such as aluminium (including Vedanta, Hindalco, and NALCO), cement (UltraTech, ACC, Ambuja, Dalmia, JSW Cement), iron and steel, petroleum refining, petrochemicals, and textiles. Each entity receives a GEI target based on its output, and non-compliance results in penalties. The scheme also allows for voluntary participation: sectors not initially covered may register projects for emission reduction or removal and receive credits through a voluntary offset mechanism.

Opportunities for Corporates: Monetising Sustainability

Beyond regulatory compliance, the CCTS offers corporates substantial opportunities to monetise sustainability. By exceeding emission targets, companies can generate surplus credits for trading, thereby creating a new revenue stream through trading with other obligated entities or potentially in voluntary markets. Participation also enhances a company's environmental, social, and governance (ESG) profile, appealing to investors and positioning the firm as a leader in climate action. With the scheme's forward-looking design aimed at eventual integration with international carbon markets, corporates may benefit from cross-border credit trading and increased access to global capital. Additionally, investments in clean technologies, energy efficiency, and carbon mitigation can attract government incentives, grants, or concessional financing, further supporting the business case for decarbonisation.

Strategic Imperatives for Industry

To capitalise on the opportunities presented by the CCTS, businesses must invest in robust monitoring, reporting, and verification systems to ensure accurate emissions tracking and credit generation. Adopting low-carbon technologies will enable companies to consistently outperform GEI targets and maximise credit earnings. Engaging suppliers and partners in emission reduction efforts is crucial, as future regulations may require broader supply chain disclosures. Active participation in policy consultations and industry associations will help businesses shape evolving regulations. Finally, companies must monitor global carbon pricing trends, such as the EU's Carbon Border Adjustment Mechanism (CBAM), to anticipate export risks and maintain competitiveness.

Challenges and Risks

Despite its promise, the CCTS faces several challenges. The scheme currently excludes major emitting sectors like electricity and agriculture, covering only about 30% of India's total emissions. Implementation complexities include setting robust benchmarks, ensuring the integrity of monitoring and verification, and preventing market manipulation. Additionally, carbon markets typically require several years to mature and deliver measurable emission reductions, and early volatility and liquidity issues are expected. To remain globally competitive, India must align its standards with international best practices and ensure that its credits are recognised in global markets.

Global Context and India's Position

The CCTS positions India among a select group of emerging economies with a compliance-based carbon market, joining countries like China and South Korea. The World Bank recognises India's scheme as a milestone in global carbon pricing, supporting the country's leadership in climate finance. By enabling transparent, market-based decarbonisation, India strengthens its negotiating position in international climate forums and attracts green investment.

Conclusion

The June 2025 MoEFCC notification marks a pivotal shift in India's climate policy, establishing a robust, compliance-driven carbon market. For corporates, this development is not just a regulatory requirement but a strategic opportunity to monetise sustainability, enhance competitiveness, and future-proof operations against global carbon risks. Success will depend on proactive adaptation, investment in innovation, and active engagement with the evolving market and policy landscape.

References:

MoEFCC, Notification on Carbon Credit Trading Scheme (2023 and 2025), The Gazette of India.

BEE & MoP, India Carbon Market Strategy Document, 2023.

Deloitte Economics Institute, India's Turning Point Report, 2021.

World Bank, Countries on the Cusp of Carbon Markets, 2022.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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