India’s Carbon Credit Trading Scheme, Efforts, Shortfalls and Solutions

Context: India’s industrial sector is a major greenhouse gas emitter. India’s recent Carbon Credit Trading Scheme targets emission intensity, but concerns remain about ambition, sector coverage, and actual impact on India’s climate goals and net-zero trajectory.

India’s Carbon Credit Trading Schemes: Efforts to Tackle Emissions by Industries

• Perform, Achieve and Trade (PAT) Scheme: Flagship market-based mechanism for improving energy efficiency in energy-intensive industries (like steel, cement, aluminium).
  • Entities with better-than-target performance can trade energy-saving certificates.
• Carbon Credit Trading Scheme (CCTS): Introduced targets for reducing greenhouse gas emissions intensity in eight major industrial sectors (e.g., cement, iron & steel, petrochemicals).
  • Entities exceeding targets can sell credits; laggards can buy to comply.
• Mandatory Environmental Regulations: Implementation of emission standards for air pollutants (PM, NOx, SO2) for sectors like thermal power, cement, and iron & steel.
• Incentives for Clean Technology Adoption: Support for the adoption of renewable energy, waste heat recovery, and electrification in select industries.
• Promotion of Resource Efficiency: Circular economy initiatives (e.g., recycling, use of alternative fuels) in the cement, paper, and textile industries.
• Voluntary Corporate Commitments: Many large firms (e.g., Tata Steel, UltraTech Cement) have set internal net-zero or low-carbon targets and invest in green technologies.

Shortfalls of These Initiatives

• Limited Ambition of Aggregate Targets: Current CCTS targets (average 1.68% annual reduction in emissions intensity for 2023-27) fall short of NDC-aligned pace (2.53% per year for manufacturing).
  • Example: Power sector expected to decarbonise faster (~3.44% per year), highlighting slower industrial progress.
• Partial Sectoral Coverage: Not all industrial entities or sectors are included; SMEs (small and medium enterprises) are often left out.
• Focus on Intensity, Not Absolute Emissions: Reduction in emissions per unit output can be offset by production growth, causing overall emissions to rise.
• Over-reliance on Market Mechanisms: Entities may prefer buying credits to making real efficiency improvements, especially if certificate prices are low.
  • Risk of “business-as-usual” if targets are easily achievable.
• Insufficient Technology Upgradation: Many industries still lack access to affordable, scalable, low-carbon technologies (like green hydrogen, carbon capture).
• Compliance and Monitoring Gaps: Weak regulatory enforcement and data transparency undermine true emission reduction.
• Lack of Integration with National Net-Zero Pathway: Sectoral targets are not always aligned with a long-term economy-wide decarbonization strategy.

Better Solutions and Way Forward

• Set More Ambitious, Science-Based Aggregate Targets: Align industrial emissions reduction with India’s NDCs and net-zero by 2070.
  • Gradually tighten CCTS caps using updated modelling.
• Expand Sectoral and Entity Coverage: Bring SMEs and hard-to-abate sectors (like chemicals, heavy manufacturing) into the compliance net.
  • Provide technical support to smaller firms.
• Promote Absolute Emissions Reductions: Combine intensity targets with caps on total emissions in major sectors.
• Incentivize Technology Transition: Direct incentives and R&D for breakthrough technologies (e.g., green hydrogen, electrification, carbon capture).
  • Facilitate low-cost finance for industry upgradation.
• Strengthen Compliance and Transparency: Robust monitoring, verification, and public disclosure of emission data.
  • Use digital tracking and third-party audits.
• Integrate Circular Economy Principles: Encourage material recycling, waste-to-energy, and use of industrial by-products (e.g., fly ash, slag).
• Capacity Building and Skill Development: Train the industry workforce in energy management, carbon accounting, and clean technology operations.
• International Collaboration and Best Practices: Learn from successful emissions trading schemes (like the EU ETS) and adapt to the Indian context.

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