‘Carbon Pricing’ massively invades the global policy arena. According to the World Bank’s State and Trends of Carbon Pricing 2025 Report, carbon pricing accounts for nearly two-thirds of the world’s GDP. India is also planting the seeds towards a comprehensive carbon pricing ecosystem. The recent years have witnessed significant strides, such as the Energy Conservation (Amendment) Act, 2022, which has yielded the inception of an Indian carbon market (ICM). Followed the formal adoption of the Carbon Credit Trading Scheme (CCTS)(rate-based Emissions Trading System (ETS)) in 2024. And the latest approval of eight voluntary carbon crediting methodologies by the Ministry of Power. All these steps aim to attain net-zero emissions by 2070, adhering to the United Nations Framework Convention on Climate Change (UNFCCC).

In layman’s terms, since carbon dioxide is the main greenhouse gas, emission reduction units and their trading markets are called carbon credits and carbon markets. The onset of the market mechanism dates back to the Kyoto Protocol in 1997. Thus formed this commodity that gives the business flexibility to adapt to the transition, meanwhile purchasing carbon credits, and those who pioneered could sell their credits; the companies could generate credits through Nature Solutions. There are two types of carbon markets—compliance and voluntary.

Compliance markets are created through laws or regulations set by governments at the national, regional or international level. Well-known examples are emissions trading systems (ETS) which use a cap-and-trade approach, where governments set an emissions cap and companies trade allowances. Voluntary carbon markets are national and international marketplaces where companies, individuals or governments can buy and sell carbon credits to meet voluntary goals. Credits are supplied by programs that reduce or remove emissions, such as reforestation, forest management or energy efficiency, often involving and benefiting local communities, Indigenous Peoples and landowners. (source: UNDP Climate Promise).1

Emission Trading Schemes are mostly implemented as part of compliance markets. The scheme operates in two ways: cap-and-trade or baseline-and-credit.

Cap-and-trade systems, which apply a cap or absolute limit on the emissions within the ETS, and emissions allowances are distributed, usually for free or through auctions, for the amount of emissions equivalent to the cap. Baseline-and-credit systems, where baseline emissions levels are defined for individual regulated entities and credits are issued to entities that have reduced their emissions below this level. These credits can be sold to other entities exceeding their baseline emission levels. (source: World Bank Groups)2.

India’s new Carbon Credit Trading Scheme takes inspiration from its earlier Perform, Achieve, and Trade program but shifts gears into a baseline‑and‑credit model. Instead of capping national emissions outright, it sets intensity targets. In its first rollout, the program focuses on nine heavy‑energy industries such as cement, steel, and electricity production. Those outperforms their target earn tradable certificates named Carbon Credit Certificates (CCC), while those lagging behind can buy credits to stay compliant. Oversight of this exchange is handled by the Central Electricity Regulatory Commission (CERC), which sets the rules to keep trading transparent and accountable. Businesses also have the option to hold on to unused certificates and apply them in later compliance periods, giving them flexibility to plan ahead.

There are eight methodologies put forward by the Ministry of Power for Voluntary Carbon Credit, those are methodologies for renewable energy (including Hydro and Pumped storage), green hydrogen production, industrial energy efficiency, landfill methane recovery, and mangrove afforestation & reforestation. (source: Press note PIB Delhi dated March 28 2025)3

With the establishment of the Indian Carbon Market (ICM), the National Steering Committee (NSC), and the Bureau of Energy Efficiency (BEE), along with both voluntary and compliance mechanisms, India is taking decisive steps toward achieving its NDC commitments. Thus, aligning with the Paris Agreement’s goal of limiting global warming to 1.5°C. Thereby progressing toward net-zero emissions by 2070, in line with UNFCCC guidance.

However, unlike a fairy-tale transformation achieved with the wave of a wand, this transition cannot be instantaneous. It demands meticulous planning, realistic, achievable targets, robust institutional, and sustained stakeholder engagement. The ambition should be translated into action, but the transition must be both just and achievable.

Where the shoes fit every stakeholder, and the magic does not disappear when the clock strikes midnight.