On January 13, 2026, the Union government notified greenhouse gas emission intensity reduction targets for petroleum refineries, petrochemicals, textiles and secondary aluminium under the Carbon Credit Trading Scheme (CCTS). The decision brought another 208 industrial entities under India’s compliance-based carbon market, taking the total number of obligated entities across seven sectors to 490. The newly covered entities include 173 textile units, 21 petroleum refineries, 11 petrochemical units and three secondary aluminium plants. Three months earlier, the government had notified targets for 282 entities in the aluminium, cement, chlor-alkali, and pulp and paper sectors.
The development attracted little public attention. Yet it represents one of the most consequential changes in India’s climate governance architecture.
The timing is significant. India is simultaneously pursuing manufacturing expansion, an energy transition and export competitiveness in an international trading environment that is increasingly shaped by carbon-related regulations. Yet Parliament has scarcely debated a central question: who will bear the economic and administrative costs of operating India’s new carbon market?
The Indian Carbon Market is often presented as an environmental reform intended to reduce emissions and encourage cleaner production. That description is incomplete. Carbon markets are also economic institutions. They create new property rights over emissions reductions, establish new compliance obligations, redistribute costs across sectors, and generate entirely new markets for auditing, verification and carbon accounting services.
More importantly, they test state capacity. India contributes around 7 per cent of global carbon dioxide emissions and has committed to reducing the emissions intensity of its GDP by 45 per cent from 2005 levels by 2030 while pursuing net-zero emissions by 2070. The Carbon Credit Trading Scheme is intended to become one of the principal instruments through which these commitments are operationalised.
The legal foundation for the scheme was created through amendments to the Energy Conservation Act, 2001. The CCTS, notified in 2023, established a compliance mechanism in which entities exceeding prescribed greenhouse gas emission intensity reduction targets receive tradable Carbon Credit Certificates. Those failing to meet their targets must purchase credits or pay environmental compensation.
The institutional architecture appears comprehensive. The National Steering Committee for the Indian Carbon Market provides strategic oversight. The Bureau of Energy Efficiency serves as the administrator. Grid India functions as the registry operator, and the Central Electricity Regulatory Commission regulates trading activities. The government has also introduced a Monitoring, Reporting and Verification framework and established accreditation mechanisms for third-party verification agencies.
On paper, the architecture is robust. The challenge lies in implementation. Carbon markets are fundamentally systems of information. Every carbon credit traded in the market must correspond to a genuine and measurable reduction in greenhouse gas emissions. This requires accurate measurement, standardised reporting, independent verification, and credible enforcement.
These functions are technically demanding. International experience provides important lessons. The European Union’s Emissions Trading System underwent repeated reforms after concerns emerged over market oversupply and weak price signals. China’s national emissions trading system has faced questions regarding data quality and emissions reporting. Carbon markets succeed not merely because legal frameworks are notified. They succeed because institutions can measure, monitor and enforce compliance credibly.
This is where the Indian experience deserves closer scrutiny. The country has frequently demonstrated the ability to design ambitious policies. The more difficult task has often been implementation. Environmental governance institutions continue to face staffing constraints, technical shortages and uneven monitoring capacity. Carbon markets are considerably more complex than traditional command-and-control regulations because they transform emissions reductions into tradable assets with monetary value.
This creates an entirely new compliance ecosystem. Carbon accounting firms, verification agencies, auditors, consultants and digital registry operators are likely to become central actors in this emerging market. Their services are not optional. They constitute the infrastructure through which the market operates.
The costs associated with this infrastructure are real. Large firms may be better positioned to adapt quickly and could benefit disproportionately from carbon credit trading because of their superior technical and financial capacities. Smaller enterprises often do not enjoy similar advantages.
Many micro, small and medium enterprises may not fall directly under the present compliance mechanism. However, they remain integrated into the supply chains of larger manufacturers. Export-oriented sectors increasingly face demands for emissions disclosures and lower-carbon production practices. These requirements may gradually increase compliance pressures across supply chains, including among smaller suppliers.
The consequences may therefore extend well beyond the 490 entities presently covered under the scheme. This raises an important political economy question.
Could carbon markets reinforce existing asymmetries between large and small firms? The possibility cannot be dismissed. Compliance-intensive regulatory systems frequently favour entities possessing stronger administrative and financial capabilities. Larger firms may adapt more quickly and generate additional value from carbon trading. Smaller enterprises may face proportionately higher reporting and verification costs.
The issue also has implications for consumers. The sectors presently covered under the scheme, including cement, aluminium, petroleum refining and petrochemicals, are deeply embedded in the wider economy. Changes in their cost structures can affect construction, manufacturing and infrastructure expenditure. Some compliance costs may eventually be transmitted across supply chains and reflected in prices.
The precise magnitude of these effects remains uncertain and requires empirical assessment. Yet the possibility that households may bear part of the transition burden has received remarkably little policy attention.
Climate policy is often presented as an environmental challenge. It is equally a governance challenge. India’s Carbon Credit Trading Scheme has quietly moved from policy conception to implementation. Targets have been notified. Institutions have been established. Trading is expected to commence shortly.
The success of India’s carbon market will depend less on carbon prices than on administrative capability. It will depend on whether the state can build credible measurement and verification systems, enforce compliance consistently, and distribute transition costs in a manner that does not disproportionately burden smaller firms and consumers. India has notified the institutions. The harder task is making them work.
(Sagari Gupta is an independent public policy researcher. Her work focuses on energy, trade, fiscal policy and governance)
