BharatNotes What is Carbon Credit?
A carbon credit is a tradable certificate that represents the avoidance, reduction or removal of one tonne of carbon dioxide or its equivalent (1 tCO2e) in greenhouse gases. It puts a price on emissions: an entity that cuts pollution below a fixed benchmark earns surplus credits, which it can sell to an entity unable to meet its own target. The mechanism harnesses market incentives to achieve emission cuts at the lowest overall cost.
A closely related term is a carbon offset — a carbon credit becomes an "offset" once it is retired to compensate for emissions elsewhere. Carbon credits should not be confused with a carbon tax (a direct price per tonne levied by government) or with allowances under a cap-and-trade system (permits to emit a capped quantity).
Global Framework: Kyoto to Paris
The concept was introduced under the Kyoto Protocol, 1997, whose Clean Development Mechanism (CDM) generated credits known as Certified Emission Reductions (CERs) from projects in developing countries. The Paris Agreement, 2015 carried it forward through Article 6, which provides for cooperative, market and non-market approaches. Article 6.4 establishes a centralised UN-supervised crediting mechanism — now branded the Paris Agreement Crediting Mechanism (PACM) — building on, and tightening, the CDM.
At COP29 (Baku, November 2024), parties adopted the standards that fully operationalised the Article 6.4 mechanism, including stricter rules for carbon removals and methodologies.
Markets: Compliance vs Voluntary
| Feature | Compliance market | Voluntary market |
|---|---|---|
| Driver | Legal mandate / cap | Self-set corporate goals |
| Regulation | Government-regulated | Largely unregulated |
| Example | India's CCTS; EU ETS | Verra (VCS), Gold Standard |
| Use of credit | Surrendered to meet target | Retired to claim "net" reduction |
India's Carbon Credit Trading Scheme (CCTS), 2023
India is building a domestic compliance market under the Energy Conservation (Amendment) Act, 2022 (Section 14(w)). The CCTS, 2023 was notified by the Ministry of Power in June 2023 and replaces the earlier Perform, Achieve and Trade (PAT) scheme, forming the Indian Carbon Market (ICM).
Key features (as of June 2026):
- Unit: Carbon Credit Certificate (CCC) = 1 tCO2e, issued by the Bureau of Energy Efficiency (BEE), the scheme administrator.
- Oversight: National Steering Committee for the Indian Carbon Market (NSCICM), chaired by the Secretary, Ministry of Power, co-chaired by Secretary, MoEFCC.
- Obligated sectors (9): aluminium, cement, chlor-alkali, fertiliser, iron & steel, pulp & paper, petrochemicals, petroleum refinery and textiles. Around 740 entities are expected to have legally binding emission-intensity targets once all sectors are notified.
- Compliance years: 2025-26 and 2026-27, with FY 2023-24 as baseline; first compliance reporting falls due in 2026.
- Offset mechanism: non-obligated entities may voluntarily reduce emissions and earn tradable CCCs.
Significance and UPSC Angle
Carbon credits are central to India's pursuit of its Nationally Determined Contributions and its 2070 net-zero pledge, offering a flexible, cost-efficient route to decarbonisation. For aspirants, the high-value points are the definition (1 tCO2e), the Kyoto-CDM-CER and Paris-Article 6 lineage, the compliance-versus-voluntary distinction, and the architecture of India's CCTS — a foundational concept underpinning the broader climate-change and carbon-market topic family.
