India carbon credit scheme enters rollout as exports face EU pressure

Steel and aluminium shipments declined before new charges took effect.

India’s Carbon Credit Trading Scheme (CCTS) has entered its implementation phase, with market design choices expected to shape its role in industrial competitiveness and emissions reduction, according to the Institute for Energy Economics and Financial Analysis (IEEFA).

IEEFA said in a report titled “The road ahead for India’s Carbon Credit Trading Scheme” that India must prioritise credible emissions targets, monitoring, reporting, and verification, and enforcement as it develops the compliance carbon market.

The report highlighted that the country’s steel and aluminium exports to EU fell 24.4% in the financial year 2025 before any Carbon Border Adjustment Mechanism financial obligations took effect. Steel exports also declined 35.1%.

The institute said a stronger domestic carbon market could help ensure more carbon value is recognised and retained within India as international carbon costs affect trade.

“What matters now is how the EU’s recognition of carbon prices paid in third countries will interact with India’s market design, and how the CCTS can be calibrated so that domestic carbon costs are credited at the border,” said Subham Shrivastava, Climate Finance Analyst and Consultant at IEEFA South Asia.

IEEFA said India should continue with compliance entities before expanding participation to financial intermediaries, which can support price discovery and hedging once the market establishes scarcity and enforcement.

“The precondition for financial intermediaries’ inclusion is genuine scarcity and credible enforcement, and that is what the CCTS needs to establish first,” said Saurabh Trivedi, Lead Specialist for Sustainable Finance and Carbon Markets at IEEFA South Asia.

The report also said the power sector, which accounts for nearly 40% of India’s greenhouse gas emissions, will require careful consideration if it is integrated into the scheme.

“Future integration of the power sector will benefit from careful consideration of electricity market regulation, dispatch decisions, cost recovery mechanisms, and coordination between carbon market and electricity regulators,” said Saloni Sachdeva Michael, Energy Specialist at IEEFA South Asia.

IEEFA said India should develop offsets and Article 6 opportunities after the compliance market establishes a credible carbon price.