India's CCTS Explained - Carbon Credit Trading Scheme 2026 Guide

The Carbon Credit Trading Scheme (CCTS) is India's first mandatory emissions trading system, notified by the Ministry of Environment, Forest and Climate Change (MoEFCC) in June 2023. It replaces the Perform, Achieve and Trade (PAT) scheme and covers 9 industrial sectors with 186 obligated entities. Under CCTS, companies must meet emission intensity reduction targets and can trade Carbon Credit Certificates (CCCs) on designated exchanges - creating a domestic carbon price that directly connects to India's net-zero 2070 commitment and the EU's CBAM.

India's carbon market has been in the works for years, but CCTS marks a fundamental shift. Unlike the earlier PAT scheme that focused on energy efficiency, CCTS puts emissions intensity at the centre of compliance. For the 186 entities across 9 sectors that fall under its scope, this is no longer voluntary - it is a binding obligation with real consequences.

This guide covers everything you need to know about CCTS: how it works, which sectors are covered, the transition from PAT, key compliance dates, and what your company should be doing right now to prepare.

What Is CCTS?

The Carbon Credit Trading Scheme is India's compliance carbon market framework, notified under Section 12 of the Energy Conservation (Amendment) Act, 2022. It establishes a baseline-and-credit system where obligated entities must reduce their greenhouse gas emission intensity below assigned targets. Entities that outperform their targets earn Carbon Credit Certificates (CCCs), which they can sell to entities that fall short.

The scheme is administered by the Bureau of Energy Efficiency (BEE) under the Ministry of Power, with policy oversight from MoEFCC. Trading of CCCs takes place on exchanges designated by the Securities and Exchange Board of India (SEBI).

Unlike cap-and-trade systems used in the EU ETS or California, CCTS uses an intensity-based approach. This means companies are not given an absolute emissions cap. Instead, they must reduce emissions per unit of output. This design allows Indian industry to continue growing while progressively decarbonizing - a deliberate policy choice reflecting India's development priorities.

PAT to CCTS Transition

CCTS did not emerge from a vacuum. It is the evolution of the Perform, Achieve and Trade (PAT) scheme, which has been running since 2012 under the National Mission for Enhanced Energy Efficiency (NMEEE).

PAT assigned energy efficiency targets (measured in specific energy consumption, or SEC) to designated consumers in energy-intensive industries. Companies that exceeded their targets earned Energy Saving Certificates (ESCerts), which could be traded on the Indian Energy Exchange (IEX). Over its seven cycles, PAT achieved cumulative energy savings of approximately 92 million tonnes of oil equivalent.

However, PAT had limitations. It measured energy intensity - not emission intensity. A company could meet its PAT target by switching from one fossil fuel to another more efficient fossil fuel, without actually reducing its carbon footprint proportionally. The ESCert market also suffered from low liquidity, with trading volumes far below what was needed for robust price discovery.

CCTS addresses these gaps by shifting the metric from energy to emissions:

• From energy intensity to emission intensity: Targets are now set in tCO2e per unit of production, directly measuring greenhouse gas output
• From ESCerts to CCCs: Carbon Credit Certificates are a more internationally recognizable instrument, potentially eligible for CBAM deductions
• From IEX-only to SEBI-regulated exchanges: Broader market infrastructure for better price discovery and liquidity
• From energy efficiency to decarbonization: Incentivizes renewable energy adoption, fuel switching to lower-carbon sources, and process innovation

Seven of the nine PAT sectors transitioned to CCTS in FY 2026, with existing PAT data forming the baseline for initial emission intensity targets. The remaining two sectors (petrochemicals and textiles) were already part of PAT's later cycles and have also been incorporated into CCTS.

Which Sectors Are Covered?

CCTS covers 9 energy-intensive industrial sectors - the same sectors that were under the PAT scheme. Together, these account for a significant share of India's industrial emissions. The 186 obligated entities are the largest energy consumers in each sector, identified based on their annual energy consumption thresholds.

Sectors like iron and steel, cement, and aluminium carry the highest emission intensities and are also the ones most exposed to the EU's Carbon Border Adjustment Mechanism (CBAM). For these sectors, CCTS compliance and CBAM preparedness go hand in hand.

How CCTS Works

The CCTS mechanism operates through a four-step cycle of baseline setting, target assignment, performance measurement, and certificate trading.

1. Baseline Assessment

BEE establishes each obligated entity's baseline emission intensity using historical production and emissions data. For entities transitioning from PAT, historical energy consumption data is converted to emission intensity using sector-specific emission factors.

2. Target Assignment

Each entity receives a specific emission intensity reduction target for a compliance cycle (typically 3 years). Targets are set based on the sector's best available technology benchmarks, the entity's current performance, and the overall sectoral decarbonization trajectory.

3. Monitoring and Verification

Entities monitor and report their actual emission intensity annually. This requires robust GHG calculation systems covering Scope 1 and Scope 2 emissions. Reports are verified by BEE-accredited verification agencies.

4. Certificate Issuance and Trading

At the end of the compliance cycle:

• Overachievers (emission intensity below target) receive Carbon Credit Certificates proportional to their surplus reduction
• Underperformers (emission intensity above target) must purchase CCCs from the market or face penalties
• CCCs are traded on SEBI-designated exchanges, establishing a market-driven carbon price

Compliance vs Offset Mechanism

CCTS has two distinct tracks that serve different purposes within India's carbon market architecture:

Compliance Mechanism

This is the mandatory side of CCTS. The 186 obligated entities across 9 sectors must meet their emission intensity targets. Failure to comply results in financial penalties and potential regulatory consequences. CCCs generated under this mechanism are compliance-grade certificates - they have regulatory backing and represent verified emission reductions.

Offset Mechanism

The offset mechanism allows voluntary projects - such as renewable energy installations, afforestation, methane capture, or energy efficiency improvements - to generate carbon credits. These credits can be purchased by obligated entities to meet part of their compliance obligations, or by non-obligated companies for voluntary offsetting (for example, to support net-zero or carbon neutrality commitments).

The offset mechanism is still being finalized, with BEE developing methodologies and eligibility criteria for offset projects. The interaction between compliance CCCs and offset credits - including fungibility and exchange ratios - will significantly affect market dynamics once both tracks are operational.

CCTS Timeline

Here are the key milestones in the development and rollout of CCTS:

"The Carbon Credit Trading Scheme will create a robust domestic carbon market, incentivize emission reductions in hard-to-abate sectors, and position India's industry for a carbon-constrained global economy." - Ministry of Environment, Forest and Climate Change, CCTS Notification, June 2023

CCTS and Other ESG Frameworks

CCTS does not operate in isolation. It connects to several domestic and international ESG frameworks that Indian companies are already navigating:

CCTS and BRSR

SEBI's Business Responsibility and Sustainability Reporting (BRSR) framework requires listed companies to disclose GHG emissions, energy consumption, and sustainability practices. The emission intensity data that companies calculate for CCTS compliance directly feeds into BRSR disclosures. Companies doing both can build a single data collection system rather than duplicating efforts.

CCTS and CBAM

The EU's Carbon Border Adjustment Mechanism allows deduction of carbon prices paid in the country of origin. As CCTS establishes a domestic carbon price through CCC trading, Indian exporters of steel, cement, aluminium, and fertilizers could potentially claim this deduction against their CBAM liability. This is one of the most strategically significant aspects of CCTS - it keeps carbon revenue in India rather than flowing to the EU.

According to the International Carbon Action Partnership (ICAP), the interplay between domestic carbon pricing and border carbon adjustments is a critical area of development for emerging economies.

CCTS and CDP / SBTi

Companies reporting to CDP or setting targets through the Science Based Targets initiative (SBTi) will find CCTS alignment natural. The emission intensity data, reduction trajectories, and verified performance metrics required under CCTS map closely to CDP questionnaire responses and SBTi target-setting requirements. Strong CCTS performance can be cited as evidence of credible decarbonization in these voluntary frameworks.

What Companies Should Do Now

Whether you are an obligated entity under CCTS or a company monitoring the scheme's impact on your sector, here are practical steps to take:

Frequently Asked Questions