India will establish its first carbon market by mid-2026 to regulate and incentivize emissions reductions. The government will introduce emissions intensity targets for nine key industries to align with India’s net-zero goal by 2070.
India is set to launch its first carbon market by mid-2026, aiming to regulate and incentivize emissions reductions across key industries. The initiative, led by the Ministry of Power, is a crucial step toward achieving the country’s net-zero emissions goal by 2070. The Bureau of Energy Efficiency (BEE), which operates under the ministry, will oversee the implementation of emissions intensity targets for industries under this framework.
On February 25, Power Minister Manohar Lal Khattar announced at the International Conference on Carbon Markets, Prakriti 2025, that groundwork is underway for a phased launch of the Indian Carbon Market (ICM). The emission intensity targets, which will serve as the foundation for this market, are expected to be introduced in the next few months.
Emission Intensity Targets for Key Sectors
The government will roll out emission intensity targets for nine “hard-to-abate” sectors, including:
- Iron and steel
- Aluminium
- Chlor-alkali
- Cement
- Fertilizers
- Pulp and paper
- Petrochemicals
- Petroleum refineries
- Textiles
These sectors, already covered under the BEE’s Perform, Achieve, and Trade (PAT) scheme, will now be subject to new emission reduction requirements that focus on greenhouse gas (GHG) emissions rather than just energy efficiency. Additional industries may be added to the framework later as part of a phased approach.
To align with India’s climate commitments under the Paris Agreement, BEE is preparing sector-specific GHG emissions intensity trajectories up to 2030. These targets will be imposed in a staggered manner, with industries expected to meet partial reductions by 2027 and full targets by 2030.
How India’s Carbon Market Will Work
The Indian Carbon Market (ICM) will be based on a carbon credit trading system, where businesses reducing their emissions below government-set limits will earn carbon credits. These credits can be traded with other entities struggling to meet their reduction goals.
In July 2024, the government finalized regulations under the Carbon Credit Trading Scheme (CCTS), which establishes two mechanisms:
- Compliance Mechanism – Industries must comply with set emissions norms within each cycle of the scheme. Companies that reduce emissions beyond their targets will receive carbon credit certificates.
- Offset Mechanism – Non-obligated entities can register projects that cut, remove, or avoid greenhouse gas emissions. These projects will also be eligible for carbon credit certificates.
India’s Climate Goals and the Role of Carbon Markets
India aims to cut its GDP emissions intensity by 45% from 2005 levels by 2030 and increase non-fossil fuel energy capacity to 50% within the same period. The establishment of a domestic carbon market is a strategic move to support these objectives while preparing the country for participation in international carbon trading mechanisms.
With a structured regulatory framework in place, India’s carbon market will drive industrial decarbonization and attract investments in clean technologies. The government is focused on ensuring a smooth rollout, with a soft launch planned before 2026 to address potential challenges.
As the world transitions to cleaner energy, India’s carbon market will play a key role in shaping its low-carbon future while balancing economic growth with environmental responsibility.
