Carbon Credit Trading Scheme, 2023

What it does

The Carbon Credit Trading Scheme, 2023 sets up the Indian carbon market. It provides for a carbon credit certificate that represents one tonne of carbon dioxide equivalent, for registration of the entities that take part, and for the issue, purchase, sale and surrender of those certificates. It is the scheme the Energy Conservation Act, 2001 contemplates, and it supplies the market machinery that other instruments then fill with obligations.

The scheme does not by itself tell a plant how much it must cut. The targets for named plants come from separate rules made under the Environment (Protection) Act, 1986. The scheme is what lets a plant that beats its target hold a certificate, and lets a plant that misses its target buy one to cover the gap.

Who it binds

It binds the entities that register under it. Two groups matter. One is the set of plants that carry a binding intensity target under the target rules, which must surrender certificates for any shortfall. The other is the set of entities outside that group that can register offset projects and earn certificates. The Bureau of Energy Efficiency administers the scheme and has published a detailed procedure for the compliance side. Dealing in certificates is confined to channels the electricity regulator has specified, and the site's note on this subject covers those regulations.

What has changed, and when

• The Ministry of Power notified the scheme on 28 June 2023 as S.O. 2825(E).
• An amendment of 19 December 2023, S.O. 5369(E), added an offset mechanism. Under it, entities outside the compliance set can register projects and earn certificates.
• The power behind the scheme came from the Energy Conservation (Amendment) Act, 2022 (No. 19 of 2022), which received assent on 19 December 2022. It added the power to specify a carbon credit trading scheme and the power to issue a carbon credit certificate to a registered entity that complies.
• The compliance targets that give the market its demand arrived later, in the Greenhouse Gases Emission Intensity Target Rules, 2025 and their amendment.

What turns on it in practice

For a plant carrying a target, the scheme is where the cost of a shortfall is settled. The site's note on plant-level targets explains the point: a plant that misses its target and leaves the gap uncovered is charged environmental compensation at twice the average traded price of a certificate for that year. That is a multiple of the market, so the price at which certificates trade becomes the main number in a compliance budget, and the plant that stays silent is priced as well.

The practical work is therefore in the records. A plant has to register on the Indian Carbon Market portal, keep a monitoring plan, have its performance verified by an accredited verification agency and file within the periods the procedure sets. A business outside the compliance set may find that an offset project is a way to earn certificates, but it must register the project and meet the scheme's verification steps before a certificate is issued.

Contracts follow the same logic. A supply or off-take contract with a plant that carries a target should say who bears the cost of certificates attributable to the output supplied, and who holds any surplus. A company evaluating a transaction involving an obligated plant should ask for the plant's baseline, its target for each compliance year and its filing record.

The scheme sits under the Ministry of Power, while the targets sit under the Ministry of Environment, Forest and Climate Change. A dispute can therefore turn on which of the two sources of power an obligation rests on, and the site's work on projects and energy transition begins with that question.