Establishment of India's Carbon Credit Trading Scheme (CCTS): UPSC Current Affairs Story Arc

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GS-2GS-34 events · 2025-03-19 → 2025-10-11

India is moving beyond just saving energy to directly penalizing carbon. By October 2025, the government finalized the first legally binding targets for four industrial giants—Aluminum, Cement, Chlor-alkali, and Pulp & Paper—forcing them to cut emissions or pay the price to meet India's 45% reduction goal.

Overview

This arc tracks the evolution of India's climate strategy from a focus on energy efficiency to a comprehensive Carbon Credit Trading Scheme (CCTS). Starting in March 2025, the government announced a transition where industries are no longer just measured on energy saved, but on greenhouse gas (GHG) equivalents emitted. The process moved from conceptual frameworks to draft rules, finally culminating in October 2025 with legally binding Greenhouse Gas Emission Intensity (GEI) targets for high-emission sectors. Managed by the MoEFCC and enforced by the CPCB, this domestic carbon market is the cornerstone of India's commitment to the Paris Agreement, allowing overperforming companies to sell credits while requiring underperformers to buy them.

How This Story Evolved

CCTS framework announced (Item 4) → Draft GEI rules introduced to operationalize CCTS (Item 16) → Draft rules formally released for consultation (Item 9) → Final legally binding GEI Target Rules notified (Item 7)

  1. 2025-03-19: India's Carbon Market
    More details

    UPSC Angle: India's Carbon Credit Trading Scheme (CCTS) to launch mid-2026.

    Key Facts:

    • Carbon Credit Trading Scheme (CCTS) set to launch mid-2026
    • Targets major industrial sectors accounting for 16% of India's emissions
    • Compliance Mechanism: Addresses emissions from energy use and industrial sectors
    • Offset Mechanism: Incentivizes voluntary actions to reduce GHG emissions
    • India committed to reducing emissions intensity by 45% by 2030 under its updated Nationally Determined Contributions (NDCs)
  2. 2025-04-30: India Introduces Draft Rules to Cut Greenhouse Gas Emissions
    More details

    UPSC Angle: India's draft GHG emission rules show commitment to climate change mitigation.

    Key Facts:

    • Baseline Emissions Intensity established for each entity for 2023–24
    • Industry-specific GEI reduction targets for 2025–26 and 2026–27
    • Overperforming entities can earn tradable carbon credit certificates
    • Non-compliance will attract penalties by the Central Pollution Control Board (CPCB)
    • Targets designed to operationalise the CCTS, 2023
    • The Ministry of Environment, Forest and Climate Change (MoEFCC) released the Draft Greenhouse Gases Emissions Intensity (GEI) Target Rules, 2025.
    • Industry-specific GEI reduction targets are set for 2025–26 and 2026–27.
    • A baseline emissions intensity is established for each entity for 2023–24.
    • Entities must submit Action Plans for compliance and undergo periodic monitoring and reporting of emissions intensity.
    • Overperforming entities can earn tradable carbon credit certificates.
    • Non-compliance will attract penalties by the Central Pollution Control Board (CPCB).
    • The targets are designed to operationalise the CCTS, 2023.
  3. 2025-06-25: MoEFCC Proposes Draft Greenhouse Gas Emission Intensity Target Rules 2025
    More details

    UPSC Angle: MoEFCC proposes draft rules for greenhouse gas emission intensity targets.

    Key Facts:

    • Rules: Draft Greenhouse Gases Emission Intensity Target Rules 2025
    • Released by: Ministry of Environment, Forest, and Climate Change (MoEFCC)
    • Objective: Reduce emissions, promote sustainable technology
    • Compliance: Meet annual emission intensity targets or purchase carbon credits
    • Enforcement: Penalties for non-compliance
  4. 2025-10-11: Greenhouse Gas Emission Intensity (GEI) Target Rules, 2025
    More details

    UPSC Angle: Greenhouse Gas Emission Intensity (GEI) Target Rules, 2025 notified.

    Key Facts:

    • GEI Target Rules, 2025: First legally binding rules
    • Four high-emission sectors: aluminium, cement, chlor-alkali, and pulp and paper
    • Carbon Credit Trading Scheme (CCTS), 2023: Operationalizes domestic carbon market
    • Paris Agreement commitment: reduce emissions intensity of GDP by 45% by 2030 compared to 2005 levels
    • Energy Conservation Amendment Act 2022: Statutory basis of CCTS
    • Ministry of Environment, Forest and Climate Change (MoEFCC)
    • Greenhouse Gases Emission Intensity Target Rules, 2025 (GEI Target Rules)
    • Effective from October 8, 2025
    • Establishes legally binding emission reduction targets
    • Operationalizes the Indian Carbon Market
    • Initially applies to 282 industrial units
    • Covers Aluminium, Cement, Chlor-alkali and Pulp & Paper sectors
    • Benchmarks emission intensity against a 2023-24 baseline
    • Average reduction targets over two years against the baseline: approximately 5.8% for aluminium, 3.4% for cement, 7.5% for chlor-alkali, and 7.1% for pulp & paper

Genesis

Trigger

The announcement of the Carbon Credit Trading Scheme (CCTS) framework on March 19, 2025, which signaled a shift from energy efficiency metrics to GHG equivalents.

Why Now

The move was necessitated by India's updated Nationally Determined Contributions (NDCs), which raised the target for reducing emission intensity of GDP to 45% by 2030 (up from the previous 33-35%).

Historical Context

This builds upon the 'Perform, Achieve, and Trade' (PAT) scheme, which focused on energy savings. The statutory foundation was laid by the Energy Conservation (Amendment) Act, 2022, which empowered the Centre to specify a carbon credit trading scheme.

Key Turning Points

  1. [2025-03-19] CCTS Framework Announcement

    Shifted the national policy focus from energy efficiency (PAT scheme) to direct GHG emission reduction.

    Before: Focus on energy savings. After: Focus on carbon equivalents (CO2e).

  2. [2025-10-11] Notification of legally binding GEI Target Rules

    Transformed the carbon market from a voluntary or 'draft' concept into a mandatory legal obligation for specific sectors.

    Before: Targets were proposed and under consultation. After: Targets are legally binding with CPCB enforcement.

Key Actors and Institutions

NameRoleRelevance
Ministry of Environment, Forest, and Climate Change (MoEFCC)Nodal MinistryReleased the Draft GEI Target Rules in June 2025 and notified the final binding rules in October 2025.
Central Pollution Control Board (CPCB)Enforcement AgencyResponsible for monitoring compliance and imposing penalties on entities that fail to meet their emission intensity targets.
Bureau of Energy Efficiency (BEE)AdministratorImplicitly the technical body (as per Energy Conservation Act) responsible for setting the sector-specific GEI reduction targets.

Key Institutions

  • Ministry of Environment, Forest, and Climate Change (MoEFCC)
  • Central Pollution Control Board (CPCB)
  • Indian Carbon Market (ICM)
  • Bureau of Energy Efficiency (BEE)

Key Concepts

Greenhouse Gas Emission Intensity (GEI)

The amount of greenhouse gas emissions generated per unit of product or economic output.

Current Fact: The 2025 rules fix sector-specific GEI targets for cutting emissions per unit of product for four sectors: aluminium, cement, chlor-alkali, and pulp and paper.

Compliance Mechanism

A mandatory system where designated industrial sectors must meet specific emission reduction targets.

Current Fact: Initially targets sectors accounting for 16% of India's total emissions as announced in March 2025.

Carbon Credit Certificates

Tradable assets earned by companies that overperform on their emission reduction targets.

Current Fact: Underperforming companies must purchase these certificates from the Indian Carbon Market to avoid penalties.

Nationally Determined Contributions (NDCs)

Climate action plans to cut emissions and adapt to climate impacts, required under the Paris Agreement.

Current Fact: India is committed to reducing emissions intensity of GDP by 45% by 2030 compared to 2005 levels.

What Happens Next

Current Status

As of October 11, 2025, the GEI Target Rules are officially notified and legally binding for four major industrial sectors.

Likely Next

The scheme is expected to formally launch mid-2026, with baseline monitoring and the first round of credit issuance for the 2025-26 period.

Wildcards

Possible inclusion of more sectors (like Iron & Steel or Fertilizers); international linkage of the Indian Carbon Market with global markets under Article 6 of the Paris Agreement.

Why UPSC Cares

Syllabus Topics

  • Government policies and interventions for development in various sectors
  • Conservation, environmental pollution and degradation
  • Growth, development and employment

Essay Angles

  • The Economic Viability of Green Transition in Developing Nations
  • Balancing Industrial Growth with Environmental Responsibility
  • Carbon Markets: The New Currency of Global Diplomacy

Prelims Likely: Yes

Mains Likely: Yes

Trend Signal: rising

Exam Intelligence

Previous Year Question Connections

  • Testing Article 6 of the Paris Agreement and carbon market principles. — The CCTS is India's domestic implementation of Article 6 principles, preparing for global carbon credit trade.
  • Connecting PAT scheme to energy efficiency. — CCTS is the direct successor and expansion of the PAT scheme, moving from energy to carbon.

Prelims Angles

  • The base year for emissions intensity calculation is 2023-24.
  • The four initial mandatory sectors are Aluminium, Cement, Chlor-alkali, and Pulp & Paper.
  • The Central Pollution Control Board (CPCB) is the agency that will levy penalties for non-compliance.
  • The statutory basis for the CCTS is the Energy Conservation (Amendment) Act 2022.

Mains Preparation

Sample Question: Critically analyze the transition from the 'Perform, Achieve and Trade' (PAT) scheme to the 'Carbon Credit Trading Scheme' (CCTS) in India's climate policy. How will the recently notified GEI Target Rules 2025 help India achieve its NDCs?

Answer Structure: Intro: Define CCTS and its link to 2030 NDCs. Body 1: Compare PAT (Energy) vs CCTS (GHG). Body 2: Significance of the 4 sectors and the GEI targets. Body 3: Role of CPCB and market-based incentives (Carbon Credits). Critical Analysis: Mention potential challenges (market price volatility, monitoring accuracy). Conclusion: Impact on India's 'Net Zero 2070' goal.

Essay Topic: From Energy Efficiency to Carbon Neutrality: India's Decarbonization Journey.

Textbook Connections

Environment, Shankar IAS Academy (10th Ed) > Chapter 21: Mitigation Strategies > p. 284

Discusses India's potential as a major seller in carbon markets and the role of Multi Commodity Exchange.

Gap: Textbook focuses on voluntary/international markets (Kyoto/CDM); it does not cover the mandatory domestic CCTS framework under the 2022 Amendment Act.

Indian Economy, Nitin Singhania (2nd Ed) > Chapter 21: Sustainable Development > p. 609

Highlights the progress of SDGs and the pursuit of carbon credits as a financing mechanism.

Gap: Does not include the specific 2025 GEI targets or the 16% emission coverage detail.

Quick Revision

  • CCTS statutory basis: Energy Conservation (Amendment) Act 2022.
  • First 4 mandatory sectors: Cement, Aluminum, Chlor-alkali, Pulp & Paper.
  • Baseline Year for GEI: 2023–24.
  • Compliance Cycle Targets: 2025–26 and 2026–27.
  • Penalty Authority: Central Pollution Control Board (CPCB).
  • India's 2030 NDC: 45% reduction in emission intensity of GDP from 2005 levels.
  • Operational date: CCTS set to launch fully by mid-2026.
  • Emission Coverage: Initially targets 16% of India's total emissions.

Key Takeaway

India has formalised a mandatory carbon market by shifting from energy efficiency to legally binding greenhouse gas emission targets for heavy industries, aligning its domestic economy with international Paris Agreement commitments.

All Events in This Story (4 items)

  1. 2025-03-19 [Economy] — India's Carbon Market
    India's upcoming Carbon Credit Trading Scheme (CCTS), set to launch mid-2026, will transition from energy efficiency metrics to greenhouse gas equivalents, initially targeting major industrial sectors that account for 16% of India's emissions. The Indian Carbon Market framework has two key mechanisms: a compliance mechanism for mandatory reductions and an offset mechanism for voluntary actions to reduce GHG emissions.
    More details

    UPSC Angle: India's Carbon Credit Trading Scheme (CCTS) to launch mid-2026.

    Key Facts:

    • Carbon Credit Trading Scheme (CCTS) set to launch mid-2026
    • Targets major industrial sectors accounting for 16% of India's emissions
    • Compliance Mechanism: Addresses emissions from energy use and industrial sectors
    • Offset Mechanism: Incentivizes voluntary actions to reduce GHG emissions
    • India committed to reducing emissions intensity by 45% by 2030 under its updated Nationally Determined Contributions (NDCs)
  2. 2025-04-30 [Environment & Ecology] — India Introduces Draft Rules to Cut Greenhouse Gas Emissions
    India has introduced new draft rules to reduce pollution from greenhouse gases (GHG), demonstrating its commitment to fighting climate change. The draft Greenhouse Gas Emission Intensity (GEI) rules include baseline emissions intensity for each entity for 2023–24, industry-specific GEI reduction targets for 2025–26 and 2026–27, and compliance requirements. Overperforming entities can earn tradable carbon credit certificates, while non-compliance will attract penalties by the Central Pollution Control Board (CPCB).
    More details

    UPSC Angle: India's draft GHG emission rules show commitment to climate change mitigation.

    Key Facts:

    • Baseline Emissions Intensity established for each entity for 2023–24
    • Industry-specific GEI reduction targets for 2025–26 and 2026–27
    • Overperforming entities can earn tradable carbon credit certificates
    • Non-compliance will attract penalties by the Central Pollution Control Board (CPCB)
    • Targets designed to operationalise the CCTS, 2023
    • The Ministry of Environment, Forest and Climate Change (MoEFCC) released the Draft Greenhouse Gases Emissions Intensity (GEI) Target Rules, 2025.
    • Industry-specific GEI reduction targets are set for 2025–26 and 2026–27.
    • A baseline emissions intensity is established for each entity for 2023–24.
    • Entities must submit Action Plans for compliance and undergo periodic monitoring and reporting of emissions intensity.
    • Overperforming entities can earn tradable carbon credit certificates.
    • Non-compliance will attract penalties by the Central Pollution Control Board (CPCB).
    • The targets are designed to operationalise the CCTS, 2023.
  3. 2025-06-25 [Environment & Ecology] — MoEFCC Proposes Draft Greenhouse Gas Emission Intensity Target Rules 2025
    India's Ministry of Environment, Forest, and Climate Change (MoEFCC) released the Draft Greenhouse Gases Emission Intensity Target Rules 2025 on June 24, 2025. These rules aim to help India meet its climate goals by reducing emissions and promoting sustainable technology in high-emission industries. Companies must meet annual emission intensity targets or purchase carbon credit certificates from the Indian Carbon Market, with penalties for non-compliance.
    More details

    UPSC Angle: MoEFCC proposes draft rules for greenhouse gas emission intensity targets.

    Key Facts:

    • Rules: Draft Greenhouse Gases Emission Intensity Target Rules 2025
    • Released by: Ministry of Environment, Forest, and Climate Change (MoEFCC)
    • Objective: Reduce emissions, promote sustainable technology
    • Compliance: Meet annual emission intensity targets or purchase carbon credits
    • Enforcement: Penalties for non-compliance
  4. 2025-10-11 [Environment & Ecology] — Greenhouse Gas Emission Intensity (GEI) Target Rules, 2025
    The Centre has notified the first legally binding Greenhouse Gas Emission Intensity (GEI) Target Rules, 2025, for four high-emission sectors: aluminium, cement, chlor-alkali, and pulp and paper. These rules fix sector-specific targets for cutting greenhouse gas (GHG) emissions per unit of product, operationalising India's domestic carbon market under the Carbon Credit Trading Scheme (CCTS), 2023. This supports India's Paris Agreement commitment to reduce emissions intensity of GDP by 45% by 2030 compared to 2005 levels.
    More details

    UPSC Angle: Greenhouse Gas Emission Intensity (GEI) Target Rules, 2025 notified.

    Key Facts:

    • GEI Target Rules, 2025: First legally binding rules
    • Four high-emission sectors: aluminium, cement, chlor-alkali, and pulp and paper
    • Carbon Credit Trading Scheme (CCTS), 2023: Operationalizes domestic carbon market
    • Paris Agreement commitment: reduce emissions intensity of GDP by 45% by 2030 compared to 2005 levels
    • Energy Conservation Amendment Act 2022: Statutory basis of CCTS
    • Ministry of Environment, Forest and Climate Change (MoEFCC)
    • Greenhouse Gases Emission Intensity Target Rules, 2025 (GEI Target Rules)
    • Effective from October 8, 2025
    • Establishes legally binding emission reduction targets
    • Operationalizes the Indian Carbon Market
    • Initially applies to 282 industrial units
    • Covers Aluminium, Cement, Chlor-alkali and Pulp & Paper sectors
    • Benchmarks emission intensity against a 2023-24 baseline
    • Average reduction targets over two years against the baseline: approximately 5.8% for aluminium, 3.4% for cement, 7.5% for chlor-alkali, and 7.1% for pulp & paper

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