The Carbon Credit Trading Scheme, initiated in 2023, is one of the latest rapid changes that have taken place within India’s carbon credit market in a bid to achieve its target of reducing its emission intensity by 45% by 2030. The Indian voluntary carbon market generated USD 122.7 million in 2023 and will reach USD 1,158.6 million by 2030, representing annual growth of 37.8%. Currently, the compliance mechanism covers the following nine energy-intensive sectors: iron and steel, cement, aluminum, fertilizers, petroleum refineries, pulp and paper, petrochemicals, and chlor-alkali. For steel sector units, the emission intensity reduction targets are 2-3% and will escalate to 4-6% by 2026-27, while cement producers are faced with reduction obligations ranging from 2-3.5% across 186 major facilities.
Beyond compliance, voluntary offsets are spread across six sectors, with renewable energy taking the lion’s share of 75.71% in market revenue. Agriculture offers enormous untapped potential: farmers can obtain 2-6 carbon credits per hectare through carbon farming, agroforestry, or reduced-tillage practices. Transportation, though accounting for less than 2% of the global carbon credits despite contributing about 14% to India’s emissions, is an emerging frontier with accelerated electric vehicle adoption.
Market infrastructure will dramatically change by 2030. Digital MRV systems powered by blockchain and artificial intelligence will facilitate seamless credit verification. Trading is currently only via the Indian Energy Exchange and Power Exchange India Limited. International integration under Article 6 of the Paris Agreement allows Indian credits to obtain global tradability, increasing value and encouraging foreign investment.
By 2030, as market maturity nears, second-phase sectors will cover construction and carbon capture, utilization/ storage. Integration of the power sector, currently absent but responsible for 40% of the emissions, could come later and probably double market coverage. Success will depend on strong credit quality standards, sufficient financial support to MSMEs, and breakthrough technologies in hydrogen production, direct iron ore reduction, and carbon capture in cement to make India’s climate commitment achievable, along with industrial competitiveness.