Lessons Learned from India’s Emissions Trading Systems

India recently established a National Steering Committee (NSC) to put in place a mechanism that would establish an indigenous emissions trading system (ETS). An ETS, or a cap-and-trade system, is a policy instrument designed to price carbon, incentivizing companies to reduce emissions. Jurisdictions managing an ETS limit or cap the total amount of GHG (greenhouse gas) emissions and liable entities within it are mandated to either reduce emissions from their production processes or continue emitting by paying for them by purchasing emission permits from a carbon market.

NSC is working on a comprehensive plan for India’s ETS in conjunction with an inter-ministerial panel drawn from the Ministry of Environment, Forest and Climate Change, the Ministry of Power, and the Bureau of Energy Efficiency. The system, known as the Carbon Credit Trading Scheme (CCTS), seeks to build regulatory and compliance systems by developing voluntary (in the case of individuals) and compliance (in the case of formal business entities) elements to develop country-specific ETS for subsequent integration with international systems of ETS.

While implementing an ETS system, the  Indian government is mindful of the electricity sector being the largest source of cost-effective greenhouse gas (GHG) reduction options. The electricity system consists of energy efficiency, home heating, appliances, and transport, both railways and buses. Reductions of carbon in the sector are mainly due to a switch over from coal to new renewable energy (RE) installations

An ETS trading across sectors would roughly be 30–50 percent more cost-effective than an ETS without trading.

It is also proposed that after the first transition period (2023–25), the second phase (2026 onwards) will include a fully functional ETS consisting of sectors and entities that are already part of a PAT (Perform, Achieve, and Trade) scheme, which will be given a GHG emissions intensity target (tCO2 e/t product).   PTS would allow individuals to be certified to have excess energy savings, which they could trade in a voluntary market in an individual capacity. PTS is a supplemental piece within ETS that allows individuals with excess energy savings to trade and earn money.

For the first time, a policy instrument in India will directly target carbon dioxide emissions compared to other energy policies, which target energy efficiency or fuel switching. Essentially, an ETS puts a price on the carbon emitted by entities. (Perform, Achieve, and Trade (PAT) is a regulatory instrument to reduce Specific Energy Consumption in energy-intensive industries, with an associated market-based mechanism to enhance cost effectiveness through certification of excess energy saving, which can be traded) (https://beeindia.gov.in/en/programmes/perform-achieve-and-trade-pat).

Depending on the overall cap-setting approach, entities in the covered sectors would get allotted emission allowances through free allocation (e.g., emissions intensity benchmarks), auctions conducted by the state authority, or a combination of both. Entities can trade emission allowances depending on the ability and costs of reducing emissions—entities with emission intensities lower than a predefined benchmark can sell credits to entities with higher emission intensities.

Submitted by Climate Scorecard India Country Manager Pooran Chandra Pandey.


Climate Scorecard depends on support from people like you.

We are a team of researchers providing information on efforts to reduce global emissions. We help make you better informed and able to advocate for improved climate change efforts. Donations of any amount are welcome.