A few years ago, a company buying carbon credits often did so to “look good.” The credits appeared in an annual Sustainability Report next to pictures of planted trees, finishing an ESG presentation slide deck. That era is over. It will end in India faster than many realize.
The change is not philosophical. It is regulatory, with a clear timeline. On June 28, 2023, the Ministry of Power announced the Carbon Credit Trading Scheme, 2023, under section 14(w) of the Energy Conservation Act, 2001. This created the Indian Carbon Market. An Offset Mechanism, added by an amendment in December 2023, lets non-obligated companies submit voluntary projects for emission reduction, removal, or avoidance. They earn tradable credits for these efforts.
How the Market Works
The Carbon Credit Trading Scheme sets emission intensity targets for energy-intensive firms. Each company is given a target for greenhouse gases emitted per unit of output. Firms that meet their target earn tradable Carbon Credit Certificates. Firms that fail must buy certificates or pay a penalty.
The Ministry of Environment, Forest and Climate Change set binding targets for seven energy-intensive sectors: aluminium, cement, chlor-alkali, pulp and paper, petroleum refining, petrochemicals, and textiles. More than 490 industrial entities must comply starting with the 2025-26 compliance year. Two more sectors, iron and steel and fertilisers, were added. This brings the total to 740 companies and over 700 million tonnes of CO2 equivalent, making it the largest emissions trading system in the world.
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The Impact on Key Industries
Cement is a clear example of the shift. The sector accounts for about 177 million tonnes of CO2 equivalent annually, or about 6 per cent of India‘s industrial output. This involves 186 companies. These plants must now set emission intensity targets. The cuts typically start at 2 to 3 per cent in 2025-26 and can increase to 3 to 15 per cent the following year, depending on the sub-sector.
Steel faces a similar challenge. Plants using a blast-furnace basic-oxygen-furnace are benchmarked against 1.46 tonnes of CO2 equivalent per tonne of crude steel. These targets will only get tighter in the coming years. For many of these emissions-heavy industries, carbon efficiency is becoming a core part of their business strategy. It helps them meet international requirements and protect their place in global supply chains.
The international carbon credit market is opening up a significant opportunity. India’s partnership with Japan offers one of the first real examples of this new market. On June 8, 2026, the two countries signed the Rules of Implementation for their Joint Crediting Mechanism. This joint effort is under Article 6.2 of the Paris Agreement. It gives Indian project developers a way to attract Japanese investment and technology. This includes areas like renewable energy, green hydrogen, sustainable aviation fuel, and carbon capture. They can issue credits that both countries can count towards meeting their climate targets. This creates the financial plumbing needed for large-scale projects.
Credit Market Credibility Concerns
Buyers now demand higher standards for carbon credits. They require robust verification and clear methodologies to ensure the reductions are real and not double-counted. The market must rebuild trust through greater transparency.
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For Indian companies, credibility is key to accessing international markets. The European Union’s Carbon Border Adjustment Mechanism imposes carbon-linked tariffs on certain goods from countries without domestic carbon pricing. This makes credit reliability essential for export competitiveness.
Strategic Alliances and Market Credibility
Green hydrogen is particularly promising for Indian industry. Companies like Reliance Industries, Indian Oil, and Adani Enterprises already have serious investments in this area. Government officials have stated that India is in talks with Japan and other partners. They are discussing bilateral deals to link carbon credits with green hydrogen production. These deals would secure investment and firm offtake agreements. If these deals happen, they solve two problems for a hydrogen developer at once. They provide a buyer for the credits and a buyer for the fuel itself.
For a company producing verified emission reductions, credits have become a revenue line. Investors want to see this properly modelled, not just as a footnote. For the energy-hungry companies now in the CCTS, the question is no longer whether to be active in carbon markets. It is how fast they build internal capacity to do it well. The targets only rise from here. The costs of not being prepared increase every compliance cycle.
