• The World Bank’s ‘State and Trends of Carbon Pricing 2025’ report has recognised India’s growing role among emerging economies in shaping global climate finance and carbon pricing frameworks.

• India is rapidly advancing toward a structured and regulated carbon pricing ecosystem as part of its broader climate and sustainable development agenda. 

• Against the backdrop of increasing global emphasis on carbon markets and emissions trading, India is now actively developing a rate-based Emissions Trading System (ETS) and associated voluntary carbon crediting mechanisms.

India’s position in global carbon pricing landscape

• Carbon pricing is a policy tool that puts a financial cost on greenhouse gas emissions, primarily carbon dioxide, to incentivise reductions in pollution and promote a shift towards cleaner energy sources. It works by making emitters pay for the environmental damage caused by their pollution, encouraging them to reduce emissions. 

• Rate-based ETS refers to a system where total emissions are not capped but individual entities are allocated a performance benchmark that serves as a limit on their net emissions. Rate-based ETS offers additional flexibility in managing future growth uncertainty as well as international competitiveness concerns.

• India is moving towards a rate-based Emissions Trading System (ETS) with the adoption of the Carbon Credit Trading Scheme (CCTS) in July 2024.

• CCTS in India is a mechanism designed to reduce greenhouse gas (GHG) emissions through carbon pricing. 

• It involves two key elements: a compliance mechanism for obligated entities (primarily industrial sectors) and an offset mechanism for voluntary participation. 

• The CCTS aims to incentivise and support entities in their efforts to decarbonise the Indian economy. 

• CCTS laid the foundation for the Indian Carbon Market (ICM) by establishing the institutional framework.

Other key points:

• The Energy Conservation (Amendment) Act, 2022 provides the legal foundation for issuing carbon credit certificates, ensuring transparency and credibility.

• In March 2025, the Ministry of Power approved eight methodologies for generating voluntary credits, covering areas such as green hydrogen, renewable energy, and mangrove restoration.

• Key initiatives like the National Green Hydrogen Mission — aiming for 5 million metric tonnes of annual production by 2030 — are closely linked to carbon pricing mechanisms. 

• The Perform, Achieve and Trade (PAT) scheme, which has already reduced emissions intensity by 15-25 per cent in targeted industries, will gradually merge with the ETS for a seamless transition.

• To oversee market operations, the National Steering Committee for the Indian Carbon Market (NSCICM) has been formed, comprising representatives from ministries, states, and industries. 

• The Bureau of Energy Efficiency (BEE) continues to play a central role in implementing energy efficiency measures across sectors.

• India is also driving behavioural change through Mission LiFE (Lifestyle for Environment), a global initiative launched at COP27 to promote sustainable habits. 

• Additionally, the Green Credit Programme (GCP), introduced in 2023, rewards tree plantation efforts with digital credits, encouraging corporate and individual participation in ecological restoration.

(The author is a trainer for Civil Services aspirants.)