As India sharpens its focus on achieving net-zero emissions by 2070, the country’s carbon market has emerged as both a challenge and an opportunity. With mechanisms like the recently launched Carbon Credit Trading Scheme (CCTS), India is positioning itself to become a global leader in carbon credit trading. Yet, questions around regulation, credibility, and participation remain critical hurdles.
In this article, Ridhi Kukreja, Consultant, Avalon Consulting, explores the evolution of carbon credit markets, highlights the challenges specific to India, and offers practical recommendations to strengthen the system. With expertise in governance and sustainability compliance, and a keen passion for environmental issues, she brings a valuable perspective on how India can transform carbon credits from policy instruments into viable, scalable solutions for a greener tomorrow.
Carbon Credits Landscape: Turning Green Goals into Viable Solutions
Evolution of Carbon Credit Markets
The carbon credit market has taken a shift from voluntary offsets to regulated compliance schemes. Initially dominated by the Kyoto Protocol’s Clean Development Mechanism (CDM), it was caused to later expand through regional initiatives such as the EU Emissions Trading System. In recent years, corporate net-zero commitments have driven the adoption of voluntary carbon markets.
Carbon credits are now being reshaped in how they get issued, traded, along with retired. Technological innovations together with stricter verification standards accompany improved transparency in this reshaping.
Carbon Credits Market Overview
Compliance Market
Compliance markets are established and regulated by governments or supranational bodies to help achieve emissions reduction goals
Under compliance market, it follows Cap-and-Trade Principle where companies buy or sell emission allowances to stay within regulatory limits; exchanges trade carbon credits, along with regulators distribute those credits for ensuring compliance. The EU Emissions Trading System (EU ETS) is known as the largest carbon compliance market because it caps the total emissions. The system enables trading for allowances. Market volatility and regulatory complexity involve ensuring actual emission reductions.
Voluntary Market
The Voluntary Carbon Market (VCM) enables organizations or individuals to buy carbon credits from third-party offset programs to voluntarily compensate for their carbon emissions.
It involvesAcquisition and Retirement where Credits are acquired through projects like reforestation and renewable energy and then retired to compensate the carbon emissions. Few challenges involve lack of standardization, verification difficulties, and maintaining credibility of offsets
India’s Carbon Credit Market
India is one of the fastest-growing economies in the world, and home to large-scale industries and businesses. With a national commitment to achieving net-zero emissions by 2070, carbon market mechanisms in India are projected to mobilize over $100 billion in green investments by 2030. The government has started the Indian Carbon Market (ICM), aiming to facilitate both compliance and voluntary carbon credit trading, prioritizing industries and sectors where emissions are difficult to decarbonize.
Corporates are actively engaging with carbon markets; large industrial players see carbon credit as a strategic tool for decarbonization and MSMEs are exploring them to minimize costs and generate additional revenue streams.
With growing international demand for credible carbon credits, especially from emerging markets, India is well-paced to emerge as a key global supplier.
India currently operates two market-based emission reduction schemes:
1. Perform, Achieve and Trade (PAT) scheme
2. Renewable Energy Certificates (REC) system
The Carbon Credit Trading Scheme (CCTS), 2023, which was launched under the Energy Conservation Act, is a recent policy initiative introduced to structure a more formal carbon market. The scheme reflects India’s ambition to position the carbon market among the top three globally by 2030. Achieving this will require not only rapid scale-up but also sustainable practice, clean energy integration, and robust mechanisms for emissions management.
However, certain gaps within CCTS require clarification, like more research is needed for CCTS to become fully functional for use and stakeholders must better articulate how they are able to participate as well as gain some benefit.Therefore, a more marketing-oriented perspective should be included to illustrate how organizations can help navigate this complex domain without overtly promoting any brand
Key Challenges in India’s Carbon Market
- Measurement and Verification: Nature-based projects encounter difficulties during verification of storage or carbon capture (e.g., afforestation projects in Madhya Pradesh)
- Balancing Supply and Demand: Oversupply could lead to price collapse, also weakening corporate interest or engagement
- Economic and Technological Barriers: Compared to the EU ETS, India faces a gap because of a lack of reliable measurement and verification tools
- Regulatory Oversight and Transparency: Projects may easilyharm the environment, or they may violate the additionality standardsbecause regulators have not sufficiently overseen them (e.g., Himachal hydropower projects)
Making the Carbon Market Work
To drive participation, sustainability efforts must not lead to significantly higher consumer costs. Instead, sustainability should be cost-effective and supported by clear regulations. Two tools are crucial:
1. Effective Regulation
2. Cost-Effective Sustainability
One practical application is using carbon credits to bridge the viability gap in projects sustainably. For instance, in one of the cases,renewable energy ventures in Southeast Asia have leveraged carbon trading to strengthen their financial feasibility, highlighting how markets can unlock profitability for sustainable initiatives while offering scalable models of emerging economies.
This approach not only demonstrated the potential profitability of green projects when supplemented with carbon credit but also highlighted a scalable model for other emerging market players.
Further, EPC (Engineering, Procurement, and Construction) players can make green technologies more viable by making their projects obtain green certification and carbon credits by evaluating decarbonization strategies. The process requires companies to do the following:
- Audit and Certification: Projects must be independently audited by third party auditors to validate emissions reductions to claim legitimate and valid carbon credits
- Carbon Registries: Entities like the Bureau of Energy Efficiency (BEE) as well as the Indian Carbon Registry ease credit issuance with ensuring compliance with emission standards also promote transparency. They can be necessary in validating such projects andlisting those who qualify matters
- Institutional Frameworks: Initiatives like the National Indian Carbon Coalition collaborate alongside stakeholders, technically guide, and consistently oversee regulations to increase investor confidence
As India’s carbon market develops, institutions/businesses will need structured direction on carbon accounting, certification, and monetization options.To foster engagement and understanding, carbon market communications must go beyond high-level narratives and clearly outline the processes, tangible benefits, and required actions.
By demystifying these steps—such as how to get audited, register credits, and leverage institutional support, more businesses will be empowered to participate.
Future of Carbon Credit Markets in India
Looking ahead, India’s carbon market needs to developinto a well-structured and transparent system supported by strong regulations and broad stakeholder engagement, hence, the focus must be on:
- Simplifying measurement and verification processes through a unified national system.
- Introducing price stability mechanisms like floor prices.
- Technology Enablement and Leveraging AI to reduce emissions:
- Monitoring: AI tracks emissions across operations
- Prediction: AI forecasts emissions and helps set reduction targets
- Reduction: Prescriptive AI enhances efficiency in operations
- Enhancing regulatory capacity and fostering skilled human capital in carbon verification to ensure transparency and create employment
If these measures are implemented, India’s carbon market can evolve into a functional, well-regulated ecosystem, supported by a clear process framework and guided stakeholder participation. By enabling sustainable practices along with economically viable and systematically guided, organizations and the country can meet its emissions goals without compromising growth.
