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Picture Courtesy: The Hindu

Context:

As India develops its carbon market, it faces a crucial challenge — ensuring that climate action does not come at the cost of farmers’ rights and community well-being. Global experiences show that without proper safeguards, carbon markets can reproduce exploitative systems that marginalize local populations under the banner of sustainability.

What Are Carbon Credits?

A carbon credit represents a verified reduction or removal of greenhouse gases (GHGs), measured in carbon dioxide equivalents (CO₂e).
These credits are generated from:

• Mitigation activities – renewable energy, energy efficiency projects.
• Sequestration activities – reforestation, agroforestry, biochar projects.

Companies purchase these credits to offset their emissions while transitioning toward cleaner operations. Ideally, such markets also reward developing nations for adopting sustainable, low-carbon pathways. 

Current status of Carbon credit in India:

• India is among the leading participants in the global voluntary carbon market (VCM), accounting for around 23% of all projects listed under international registries such as Verra and Gold Standard. (Source: Centre for Science and Environment, 2024) 

• As of mid-2023, India had approximately 1,451 carbon credit projects either registered or in various stages of approval under the voluntary carbon market. (Source: IBEF, 2023) 

• Out of these, around 860 projects have been successfully registered or certified to issue carbon credits. (Source: CSE India, 2024) 

• India-based projects have collectively been issued about 298 million carbon credits till May 2023, while approximately 8 million credits have been retired (used by buyers to offset emissions). (Source: CSE India, 2024) 

• Despite this progress, no carbon credits have yet been generated under India’s domestic Carbon Credit Trading Scheme (CCTS), which was officially notified in 2023. (Source: Down to Earth, December 2024) 

• The Greenhouse Gas Emission Intensity (GEI) Rules, 2025 have been introduced under the CCTS, covering 282 large industrial units across key sectors such as cement (186 units), aluminium (13), chlor-alkali (30), and pulp & paper (53) to ensure measurable emission reductions. (Source: ESG News, 2025)

Picture Courtesy: PIB

Implications of Carbon Credits:

Challenges of Carbon Credits in India:

• Many carbon credit projects in India (especially renewable energy, solar, wind, hydropower) are being criticised because they would likely have been implemented even without the carbon credit revenue, yet still receive credits. In 2024, of ~47 largest projects globally that issued so-called “problematic credits” (credits unlikely to deliver real emissions reductions), nine were in India, contributing ~7.7 million retired credits. (Source: Mongabay-India) 

• India does not yet have a fully harmonised, clear and mature regulatory regime governing carbon credit generation, trading, verification, and benefit-sharing. 

• Credible measurement, reporting, and verification are essential for ensuring that carbon credits correspond to real, additional, and permanent emission reductions. Forest-protection / REDD+ style projects are reported to use flawed baselines, flexible parameters, resulting in over-crediting. (Source: TOI) 

• Many small farmers or local communities involved in carbon projects don’t receive promised payments, or these are delayed. In voluntary carbon projects, up to 80% of revenue may be captured by intermediaries (consultants, developers) leaving a much smaller portion for those actually carrying out emission reduction or sequestration. (Source: The daily guardian)  

• Even when projects are initially successful, long-term risks like tree mortality, forest fires, climate change impacts (e.g. rising temperatures reducing net primary productivity), or leakage (emissions displaced elsewhere) can undermine the carbon sequestration claims. A study found that despite “greening” in LAI (Leaf Area Index), warming has already begun to reduce net primary productivity (NPP) in key forested zones in India. (Source: arXiv) 

• Carbon credit prices fluctuate heavily, and domestic demand in India is weak relative to potential, which makes planning difficult. Over the past decade, India generated 61 million carbon credits, but only 600,000 were sold domestically—a ratio of ~100:1 in favour of international sales. (Source: ICF)

Government Measures for Carbon Credit / Emissions Trading in India:

• Carbon Credit Trading Scheme (CCTS), 2023: Notified in June 2023 and amended in December 2023 under the Energy Conservation Act, 2001. 

• Greenhouse Gas Emission Intensity (GEI) Target Rules, 2025: Drafted and notified in 2025 to set legally binding emission intensity targets for several sectors (aluminium, iron & steel, petroleum refining, petrochemicals, textiles initially in draft; then high emitting sectors like cement, aluminium, pulp & paper, chlor-alkali with 282 industrial units). (Source: IE)  

• NABARD has launched a pilot in Karnataka involving 3,500 mango farmers to generate carbon credits via biomass management and tree plantation. This is meant to demonstrate how agriculture / forestry projects can feed into the carbon credit regime. (Source: TOI) 

• The government has approved / is planning a ₹38,900 crore CCUS programme to capture and store carbon from industrial sources, which can support emission removal efforts and feed into offsets / credit markets. (Source: IE) 

• Non-compliance penalties will be enforced under provisions of the Environment (Protection) Act, 1986. 

Way forward:

• It’s essential to ensure these methodologies embed strong additionality, permanence, leakage prevention, and high MRV (Measurement, Reporting, Verification) India already created a carbon sink of 1.97 billion tonnes CO₂ equivalent between 2005-2019, and aims for 2.5–3.0 billion tonnes by 2030. (Source: Mint) 

• Raising the price floor, possibly introducing market stability mechanisms (price bands, reserve, etc.), could improve incentives for high-quality, long-term projects. Current average carbon prices in India (for voluntary credits) are relatively low — for example ~US$ 2.35 per tonne CO₂ in Q1 2024 vs significantly higher in neighbouring South Asian countries. (Source: Wood Mackenzie)  

• Capacity building is needed: India has set up a National Designated Authority (NDA) (21 members) to oversee implementation of market-based mechanisms under Paris Agreement. This helps in governance coordination. (Source: TOI) 

• India’s export economy (~US$ 825 billion in 2024-25) is increasingly exposed to carbon border adjustment mechanisms (CBAM) and tightening climate-related import standards in markets like the EU and UK. (Source: Reuters) 

• Incentivising private sector through clear policy, risk mitigation, carbon credit-linked funding, and integrating market mechanisms with green finance tools can help mobilise required resources. The finance gap is large: estimates suggest India needs over US$ 10 trillion by 2070 to meet its climate goal, but current capital flows meet only around US$ 6.6 trillion. (Source: ICF) 

Source: The Hindu