India's Carbon Credit Trading Scheme and the Carbon Border Adjustment Mechanism
Why in news: On 12 October 2026 India's Power Secretary met the European Commission's Director-General for Taxation and Customs Union on India's carbon market and CBAM.
India's Carbon Credit Trading Scheme, specified under the Energy Conservation Act, 2001 as amended in 2022, prices greenhouse gas emissions through tradable Carbon Credit Certificates, with the Bureau of Energy Efficiency as Administrator. The EU's Carbon Border Adjustment Mechanism charges importers for carbon embedded in goods. India's Power Secretary discussed both with the European Commission on 12 October 2026.
Syllabus: GS3 · Indian Economy & Growth; Prelims · Environment & Ecology; GS3 · Environment & Conservation
Why this matters for UPSC
GS3 environment and economy, and GS2 effect of developed countries' policies on India: Prelims can ask the CCTS's parent Act, Administrator and Registry, or CBAM's sectors and phases; Mains, carbon pricing and trade.
In short
India's Carbon Credit Trading Scheme (Energy Conservation Act, 2001, amended 2022) prices emissions through tradable certificates; the EU's Carbon Border Adjustment Mechanism charges importers for embedded carbon.
The CCTS can blunt CBAM only if its prices and verification win EU recognition; wider coverage and rigorous checks will decide that credibility.
Why it matters
Take an Indian aluminium smelter. Since October 2025 it has a legal limit on greenhouse gas emitted per tonne of product. If it cleans up faster than required, it earns credits it can sell; if it falls short, it must buy credits or pay a penalty set at twice their average price. If it ships to Europe, it faces a second price: since January 2026 its EU buyer must purchase CBAM certificates for the carbon embedded in its goods. The EU allows a deduction for carbon price already paid at the place of production, so a credible Indian carbon market could reduce what exporters pay at the European border. Hence India seeks EU recognition of its scheme and verification system.
Prelims pointers
- Energy Conservation Act, 2001: clause (w) of section 14, under the 2022 amendment, lets the Centre specify a carbon credit trading scheme in consultation with the Bureau of Energy Efficiency.
- CCTS roles: Bureau of Energy Efficiency, Administrator; Grid Controller of India Limited, Registry; Central Electricity Regulatory Commission, regulator of trading; National Steering Committee, oversight.
- Compliance mechanism is for obligated entities with GEI targets; offset mechanism is voluntary, for non-obligated entities' projects.
- Perform, Achieve and Trade (2012): energy-efficiency targets for designated consumers; its sectors are moving to CCTS, but thermal power plants have not moved.
- Environmental compensation under the 2025 GEI rules is imposed by the Central Pollution Control Board, not the Bureau of Energy Efficiency.
- CBAM's six sectors: cement, iron and steel, aluminium, fertilisers, electricity, hydrogen. Certificates are priced from EU Emissions Trading System allowance auctions.
- Carbon leakage: carbon-intensive production moving to countries with laxer climate rules, or imports displacing cleaner domestic goods; CBAM targets it.
- India's NDC under the Paris Agreement: cut GDP emission intensity 45% by 2030 from 2005 levels; net zero by 2070.
Practise a UPSC-style question
With reference to the institutional framework of India's Carbon Credit Trading Scheme (CCTS), consider the following statements:
1. The Central Electricity Regulatory Commission functions as the Registry of the Indian Carbon Market.
2. The Bureau of Energy Efficiency serves as the Administrator of the scheme.
3. The National Steering Committee is co-chaired by the Secretaries of the Ministry of Power and the Ministry of Environment, Forest and Climate Change.
Which of the statements given above is/are correct?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Show the answer
Answer: (b) 2 and 3 only
1 is incorrect: Grid Controller of India Limited (Grid India) is the Registry; the Central Electricity Regulatory Commission provides regulatory support for trading. 2 is correct: the Bureau of Energy Efficiency is the Administrator. 3 is correct: the National Steering Committee is co-chaired by the Power and Environment Secretaries.
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