Carbon Credit Trading Scheme (CCTS)

The Carbon Credit Trading Scheme (CCTS) is a market-driven initiative developed under the Indian Carbon Market (ICM), aimed at regulating and trading carbon credits to facilitate the reduction of greenhouse gas (GHG) emissions in key industrial sectors in India.

Key Objectives of CCTS:

• Decarbonisation of Industrial Sectors: The scheme is designed to decarbonise high-emission sectors in India by shifting the focus from just improving energy efficiency (as seen in the earlier PAT Scheme) to directly reducing GHG emissions intensity.

• Monetary Value for GHG Emissions: CCTS assigns a monetary value to carbon emissions, making it financially beneficial for industries to reduce their carbon footprint.

• Accelerating Transition to Low-Carbon Economy: It supports India’s broader goal of transitioning to a low-carbon economy, helping meet international climate commitments and national climate goals.

Transition from PAT to CCTS:

• The Perform, Achieve, and Trade (PAT) scheme, which focused primarily on energy efficiency improvements in energy-intensive sectors, has now been superseded by the CCTS.

• PAT Scheme: Issued Energy Saving Certificates (ESCerts) based on energy efficiency improvements.

• CCTS: Shifts focus to GHG emissions intensity and issues Carbon Credit Certificates (CCC), each representing 1 tonne of CO₂ equivalent reduced. The certificates can be traded in the market.

Key Features of CCTS:

1. Compliance Mechanism:

   • Obligated Sectors: Industries in the sectors covered by the CCTS must meet sector-specific emissions intensity targets.

   • Earned Carbon Credit Certificates (CCC): Entities that exceed their emissions intensity reduction targets earn tradable Carbon Credit Certificates (CCC).

   • Buying and Selling Credits: Entities that fail to meet their targets must buy carbon credits from others who have surplus credits, incentivizing emissions reductions across sectors.

2. Offset Mechanism:

   • Voluntary Participation: Entities outside the mandated sectors can voluntarily participate by reducing emissions and earning carbon credits. This broader participation helps increase the overall carbon market's efficiency and reach.

Target Sectors Under CCTS:

The scheme mandates participation from eight high-emission industrial sectors that contribute around 16% of India’s total GHG emissions. These sectors include:

1. Aluminium

2. Cement

3. Pulp & Paper

4. Chlor-Alkali

5. Iron & Steel

6. Textiles

7. Petrochemicals

8. Refineries

These sectors are required to meet emission intensity reduction targets set by the Bureau of Energy Efficiency (BEE).

Exclusion of Power Sector:

• The power sector, which contributes about 40% of India’s total GHG emissions, is currently excluded from the compliance mechanism of CCTS.

• There are possibilities for inclusion of the power sector in later phases of the scheme.

Alignment with India’s Nationally Determined Contributions (NDCs):

• India has committed to a 45% reduction in emissions intensity of its GDP by 2030, relative to 2005 levels, under the Paris Agreement.

• CCTS is one of the key policy instruments to help India meet these ambitious climate targets.

Significance of CCTS for India:

1. Climate Action: CCTS plays a crucial role in supporting India’s climate goals by targeting some of the most emission-intensive sectors.

2. Market-Based Mechanism: By assigning a monetary value to GHG emissions, the scheme introduces a market-based approach to incentivize emission reductions and promote sustainable industrial practices.

3. Encouraging Industry Participation: The trading aspect of the system encourages industries to reduce emissions by providing financial incentives for achieving emission reduction targets.

4. Long-Term Sustainability: By focusing on emissions intensity rather than just energy efficiency, the CCTS will contribute to the long-term decarbonisation of India’s industrial sectors, which will be essential for the country’s climate resilience and sustainable economic growth.

The CCTS is a forward-looking step in India's efforts to reduce its carbon footprint while fostering a low-carbon economy. It offers a flexible, market-driven solution to the pressing issue of industrial emissions and ensures environmental sustainability while simultaneously promoting economic growth through innovation and competitiveness.