Key Takeaways
- 112M credits issued in Year 1, primarily renewable energy and energy efficiency
- 2Price band of ₹650-₹2,200/tCO₂e established across trading sessions
- 3Phase II compliance covers 9 sectors including iron & steel, cement, aluminium
- 4MRV infrastructure remains the binding constraint on credit supply
Scheme Architecture and Year One Activity
India's Carbon Credit Trading Scheme (CCTS), notified under the Energy Conservation (Amendment) Act 2022, became operational in 2025 with the Bureau of Energy Efficiency (BEE) as scheme administrator and the Power Exchange of India (IEX) handling trading infrastructure. The scheme operates a dual mechanism — a compliance market for obligated entities in energy-intensive sectors and a parallel offset mechanism for voluntary participants generating credits from non-obligated activities.
In its first year of operation, the CCTS issued 12 million credits, the majority sourced from renewable energy generation (61%), industrial energy efficiency improvements (24%), and methane abatement projects (8%). Trading volumes ramped from initial weekly sessions of 50,000-80,000 credits in Q1 to 280,000-340,000 credits per week by Q4, with the registered participant base growing from 87 entities at launch to 412 by year-end.
Price Discovery and Market Behaviour
Price discovery during Year 1 established a trading band of ₹650-₹2,200 per tCO₂e (approximately $8-$26), with significant intra-period variation reflecting credit vintage, project type, and verification status. Renewable energy credits with recent vintages traded at the upper end of the range, while older energy efficiency credits from PAT-scheme conversions traded near the floor.
The price band remains substantially below the implicit carbon prices embedded in EU ETS (€85-€95/tCO₂e) and the UK ETS, reflecting both the early stage of the Indian market and the abundance of low-cost abatement opportunities in renewable energy and industrial efficiency. MindEarth expects prices to firm as Phase II compliance obligations bring nine additional sectors into the demand pool from FY 2027-28.
“Phase II compliance obligations will bring nine additional sectors into the demand pool from FY 2027-28.”
Phase II Compliance Sectors
Phase II of the CCTS, scheduled for activation in FY 2027-28, expands compliance obligations to nine high-emission sectors: iron and steel, cement, aluminium, pulp and paper, chlor-alkali, fertilisers, petrochemicals, refineries, and textiles. Together these sectors account for approximately 40% of India's industrial emissions and 28% of total national emissions.
Draft sectoral emission intensity benchmarks have been issued for consultation, with final targets expected by Q3 2026. Obligated entities exceeding their benchmarks must either reduce emissions, purchase compliance credits, or pay the regulatory penalty (capped at twice the prevailing market price). Early estimates suggest 60-70% of Phase II entities will be net buyers in the initial compliance cycle, creating substantial demand-side pressure.
Structural Constraints and Outlook
The binding constraint on CCTS market development in Year 1 was MRV (monitoring, reporting, verification) infrastructure — specifically the limited capacity of accredited verifiers and the time-consuming validation processes for new project methodologies. As of year-end, 23 verification agencies had been accredited, but processing times for new project registrations averaged 8-12 months.
MindEarth projects credit issuance will reach 28-35 million annually by FY 2028 as MRV infrastructure scales and Phase II obligated entities begin participating. Price evolution will depend critically on the calibration of Phase II benchmarks — overly stringent targets risk creating supply shortages and price spikes, while overly lenient targets undermine the scheme's environmental credibility.
