Examining the Regulatory Evolution of India’s Carbon Market and the CERC Carbon Credit Trading Regulations

By – Aditya Pratap Singh

Table of Contents

Introduction

India has initiated the development of a domestic carbon market through a series of legislative and regulatory measures aimed at addressing greenhouse gas emissions through market-based mechanisms. The statutory basis for this framework was introduced through the Energy Conservation (Amendment) Act, 2022, which introduced provisions relating to carbon credit certificates and empowered the Central Government to specify a carbon credit trading scheme providing for the issuance and trading of such certificates.¹

Pursuant to these amendments, the Ministry of Power notified the Carbon Credit Trading Scheme, 2023, which establishes the framework for the Indian Carbon Market. The scheme sets out the institutional architecture of the market and assigns specific roles to different authorities, including the Bureau of Energy Efficiency (“BEE”), which functions as the administrator of the market, the Grid Controller of India Limited, which maintains the registry for carbon credit certificates, and the Central Electricity Regulatory Commission (“CERC”), which is designated as the regulator for trading activities relating to such certificates.

Subsequent measures have sought to operationalize the framework established under the scheme. The BEE has issued detailed procedures relating to the compliance mechanism under the scheme, including provisions governing monitoring, reporting and verification of greenhouse gas emissions. In addition, greenhouse gas emission intensity targets for certain industrial sectors have been notified by the Central Government under the Environment (Protection) Act, 1986 as part of the implementation of the compliance mechanism under the Carbon Credit Trading Scheme, including sectors such as petroleum refineries and the textiles industry².

Carbon Markets and Carbon Credit Trading 

Carbon markets are mechanisms through which greenhouse gas emission reductions are assigned an economic value and may be traded between entities. Such systems allow emission reductions to be achieved through market-based instruments rather than solely through direct regulatory limits. The basic unit used in carbon markets is the carbon credit, which represents a quantified reduction, removal, or avoidance of greenhouse gas emissions. Under the Carbon Credit Trading Scheme, 2023, carbon credit certificates represent reductions or avoidance of greenhouse gas emissions measured in terms of tonnes of carbon dioxide equivalent (tCO₂e).

Carbon credits may be issued to entities that achieve emission reductions beyond prescribed targets. These credits may then be traded within the market. Conversely, entities that do not meet prescribed emission limits or emission intensity targets may acquire carbon credits in order to address the shortfall.

Carbon markets generally operate through two broad segments. The first is a compliance market, which applies to entities that are subject to regulatory emission limits or emission intensity targets. The second is a voluntary or offset market, in which entities that are not subject to mandatory emission limits may participate in the market by purchasing carbon credits voluntarily.

Statutory Framework for Carbon Credit Trading in India

The framework for carbon credit trading in India arises under the Energy Conservation Act, 2001, as amended by the Energy Conservation (Amendment) Act, 2022. The amendment introduced provisions relating to Carbon Credit Certificates and empowered the Central Government to establish a scheme for their issuance and trading.

In exercise of powers under Section 14(w) of the Act, the Central Government notified the Carbon Credit Trading Scheme, 2023 on 28 June 2023. The scheme establishes the framework for the Indian Carbon Market under which verified greenhouse gas emission reductions may be recognized and issued in the form of Carbon Credit Certificates, which may subsequently be traded within the market³.

The scheme establishes the institutional structure for the governance and administration of the Indian Carbon Market. At the governance level, it provides for the National Steering Committee for the Indian Carbon Market, which oversees the functioning of the market and makes recommendations relating to procedures, emission reduction targets for obligated entities, and the issuance of carbon credit certificates.

The BEE is designated as the administrator of the Indian Carbon Market. Its functions include identifying sectors with potential for greenhouse gas emission reductions, recommending their inclusion within the carbon market framework, developing emission reduction trajectories and emission intensity targets for entities covered under the compliance mechanism, accrediting carbon verification agencies, and issuing carbon credit certificates based on the recommendations of the National Steering Committee and approval of the Central Government.

To support implementation of the scheme, the BEE has issued the Detailed Procedure for the Compliance Mechanism under the Carbon Credit Trading Scheme, which sets out the operational framework for monitoring, reporting and verification of greenhouse gas emissions. The procedure specifies the requirements relating to submission of emissions data by obligated entities, verification of such data by accredited agencies, and the process relating to issuance or surrender of carbon credit certificates.

Verification of emissions under the scheme is carried out by Accredited Carbon Verification Agencies, which are accredited by the BEE in accordance with procedures approved under the scheme. The scheme also provides for the constitution of Technical Committees to examine sector-specific issues and provide technical recommendations in relation to emission reduction targets and related matters.

For the purposes of maintaining records of carbon credit certificates, the scheme designates the Grid Controller of India Limited as the registry for the Indian Carbon Market. The registry maintains records of registered entities, maintains the database of carbon credit certificates, records transfers of such certificates arising from market transactions, and functions as a meta-registry capable of linking with other national or international registries relating to market-based mechanisms.

A central component of the scheme is the compliance mechanism, under which sectors and entities may be notified as obligated entities and required to comply with prescribed greenhouse gas emission intensity targets. These targets are developed on the basis of sectoral studies and recommendations made by the BEE and are subsequently notified by the Central Government. Entities that achieve emission intensity levels below the prescribed targets may be issued Carbon Credit Certificates corresponding to the emission reductions achieved, while entities that fail to meet the prescribed targets are required to address the shortfall through the purchase of carbon credit certificates from the market.

The scheme further provides that trading of carbon credit certificates shall take place through power exchanges, which function as electronic trading platforms. The CERC is designated as the regulator responsible for matters relating to the trading of carbon credit certificates. 

CERC (Terms and Conditions for Purchase and Sale of Carbon Credit Certificates) Regulations, 2026

In order to operationalize the trading framework contemplated under the Carbon Credit Trading Scheme, 2023, the CERC has notified the CERC (Terms and Conditions for Purchase and Sale of Carbon Credit Certificates) Regulations, 2026. These regulations establish the regulatory framework governing the purchase and sale of Carbon Credit Certificates in the Indian Carbon Market⁴.

The regulations apply to the trading of carbon credit certificates issued under the Carbon Credit Trading Scheme and provide the operational rules governing participation in the market, trading through power exchanges, price discovery, and regulatory oversight.

Trading through Power Exchanges

The regulations provide that trading of carbon credit certificates shall take place through power exchanges registered with the Commission. In accordance with Regulation 9, carbon credit certificates are to be dealt with through power exchanges unless otherwise permitted by the Commission. These exchanges function as electronic trading platforms that facilitate the purchase and sale of carbon credit certificates between market participants.

Power exchanges intending to facilitate trading of carbon credit certificates are required to obtain approval of the Commission for their rules, business rules and bye-laws governing such trading. Trading of carbon credit certificates on these exchanges is required to be conducted in accordance with the provisions of the regulations as well as the trading rules approved by the Commission.

Market Participation

Participation in trading requires entities to be registered with the Registry, which is maintained by the Grid Controller of India Limited. The registry maintains records of carbon credit certificates issued under the scheme and maintains the accounts of registered entities holding such certificates.

The regulations recognize participation of both obligated entities and non-obligated entities in the market. Obligated entities may acquire carbon credit certificates to meet compliance requirements arising from emission intensity targets notified under the carbon market framework. Non-obligated entities may also participate in the market by purchasing carbon credit certificates on a voluntary basis.

The registry therefore functions as the system through which the ownership of carbon credit certificates is recorded and updated, including the recording of transfers of certificates following trading transactions executed on power exchanges.

Trading Mechanism and Price Discovery

The regulations provide for price discovery through market-based trading on power exchanges, where buyers and sellers submit bids for the purchase and sale of carbon credit certificates.

In order to maintain stability in the market, Regulation 11 provides that the Commission may determine a floor price and a forbearance price for carbon credit certificates under the compliance mechanism. These price limits are to be determined by the Commission based on proposals submitted by the BEE, which serves as the administrator of the Indian Carbon Market.

The floor price and forbearance price mechanism is intended to establish price boundaries within which trading of carbon credit certificates may take place, thereby supporting orderly functioning of the market.

Market Monitoring and Oversight

The regulations also provide for regulatory oversight of trading activities by the Commission. Under Regulation 13, the Commission, assisted by the BEE, exercises market oversight over trading of carbon credit certificates on power exchanges or through any other permitted trading platform. The Commission may intervene where abnormal price movements, market irregularities, or other circumstances affecting the orderly functioning of the market are observed.

Power exchanges are required to provide the Commission with information and data relating to trading of carbon credit certificates to facilitate monitoring and oversight of market activity.

Settlement and Registry Updates

Following the execution of trades on the power exchange platform, the details of such transactions are communicated to the Registry maintained by the Grid Controller of India Limited. The registry updates the accounts of the buyer and seller to reflect the transfer of carbon credit certificates.

Through this mechanism, the registry maintains the official record of ownership of carbon credit certificates and ensures that transfers arising from market transactions are accurately recorded.

Conclusion 

The development of India’s carbon market has taken place through a series of legislative and regulatory steps. The Energy Conservation (Amendment) Act, 2022 provided the statutory basis for carbon credit certificates, while the Carbon Credit Trading Scheme, 2023 established the institutional structure of the Indian Carbon Market and introduced the compliance mechanism for greenhouse gas emission intensity targets across identified sectors.

Within this framework, the CERC (Terms and Conditions for Purchase and Sale of Carbon Credit Certificates) Regulations, 2026 provide the regulatory structure for trading carbon credit certificates through power exchanges. By laying down the rules for market participation, trading procedures, price discovery and regulatory oversight, the regulations help operationalize the trading component of the carbon market framework.

As the Indian Carbon Market develops further, the effectiveness of this framework will depend on the implementation of the compliance mechanism, the participation of obligated entities and other market participants, and the development of trading activity on power exchanges. These measures represent an important step towards introducing market-based approaches for addressing greenhouse gas emissions in India.

FAQs

References –

1.  https://powermin.gov.in/sites/default/files/The_Energy_Conservation_Amendment_Act_2022_0.pdf
2. Ministry of Environment, Forest and Climate Change has notified the Greenhouse Gases Emission Intensity Target (Amendment) Rules, 2025.
3. https://beeindia.gov.in/sites/default/files/CCTS.pdf
4. CERC (Terms and Conditions for Purchase and Sale of Carbon Credit Certificates) Regulations, 2026.

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