Power Sector Must Join India’s Carbon Credit Trading Scheme (2025 Paper)

India has set a clear target, net zero by 2070, and carbon markets will carry a big share of that load. A new 2025 paper says the next step is simple and urgent, bring the power sector into the Carbon Credit Trading Scheme.

Why this matters is plain. Power is India’s biggest emitter, and it has cheaper paths to cut emissions, through renewables and efficiency. Adding it to the market would cut more carbon, speed coal-to-clean shifts, and unlock new revenue for green projects.

This post breaks down what the paper proposes, how inclusion could work, and what it means for credit prices and market depth. You will see the expected emissions impact, how revenues could flow to clean energy, and the policy moves needed to make it stick.

What is India's Carbon Credit Trading Scheme?

India’s Carbon Credit Trading Scheme (CCTS) is a baseline-and-credit market for emissions. Regulators set emission targets for covered sectors. Companies that beat their targets earn tradable credits. Companies that fall short buy credits to close the gap. It rewards early movers, steers capital to cleaner tech, and gives a clear price signal for carbon.

The scheme builds on strong monitoring, reporting, and verification, known as MRV. Rules align with global standards so credits carry weight with investors and auditors. CCTS is also the bridge from the older PAT program, with a phased transition starting in 2025 and a wider market scope.

How the Trading System Works

Here is the simple loop most firms will follow:

1. Regulators set an emissions baseline for each covered facility.

2. Performance is measured and verified against that baseline.

3. Facilities that emit below baseline earn carbon credits, one per tonne of CO₂.

4. Facilities above baseline buy credits to meet compliance.

Trading happens on regulated exchanges, with market oversight by the Central Electricity Regulatory Commission (CERC). Credits are issued and tracked in a central registry operated by the Grid Controller of India, which acts as the system book of record. This setup lowers settlement risk and improves audit trails.Data integrity is the backbone of trust. CCTS relies on standardized MRV protocols, third-party verification, tamper-proof registry entries, and periodic audits. Think of it like a financial ledger, only for carbon. Without clean data, prices wobble and buyers hesitate. With strong MRV, credits hold value, prices are credible, and firms plan investments with confidence.

Key institutions work in concert:

• Ministry of Environment, Forest and Climate Change sets climate policy and rules.

• Bureau of Energy Efficiency (BEE) develops sectoral benchmarks and MRV templates.

• CERC supervises trading and market conduct.

• Grid Controller of India operates the national carbon registry.

Current Coverage and Limitations

CCTS currently covers nine industry groups using a baseline-and-credit model. These are high-emitting, energy-intensive sectors:

• Cement

• Iron and Steel

• Fertilizers

• Petroleum Refineries

• Petrochemicals

• Aluminum

• Pulp and Paper

• Textiles

• Chlor-alkali

What is missing is grid power generation. That gap limits market depth and climate impact, since power drives the largest share of India’s emissions and has clear, lower-cost abatement options. Leaving power out also narrows liquidity, weakens price discovery, and slows the shift of capital into renewables, storage, and efficiency.

Bringing power into CCTS would widen coverage, scale credit supply and demand, and make the carbon price more informative. It would also accelerate coal-to-clean investment decisions, which is where the largest, fastest cuts can happen.

Why the Power Sector Needs to Join the CCTS

India’s biggest emitter is power, mostly coal plants. Leaving it outside the market keeps the largest source of CO₂ unpriced, which weakens every other sector’s effort. Bringing power into the CCTS makes the carbon price more credible, drives faster coal-to-clean shifts, and helps India hit its 2030 targets with less cost and more certainty.

Reducing Emissions on a Large Scale

Power and heat make up the largest slice of India’s CO₂. Most of that comes from coal-fired generation. When the biggest source is not in the market, the national carbon price is thin and the cuts are slower. Including power changes that.

Here is what happens once power is covered:

• Large, quick cuts: Targeted baselines on coal units push low-cost actions first, like better heat rates, flexible operation, and retrofits for higher efficiency. Cleaner plants earn credits, laggards buy them.

• Faster renewable build: A clear carbon price tilts dispatch toward solar, wind, hydro, and storage. That lowers the running hours of inefficient coal units and speeds retirement decisions.

• Real system effects: Covering both direct emissions from power plants and indirect emissions from electricity use makes abatement stick across supply chains. When power gets cleaner, every factory’s footprint shrinks on day one.

• Alignment with global practice: Most mature carbon markets price power first, which supports strong monitoring and reliable price signals. India’s design is already mapped by independent trackers, and the next step is scale with power coverage. See the market overview in the ICAP profile of India’s CCTS.

This path supports India’s 2030 goals by shifting investment toward clean capacity, improving load factors for renewables, and cutting system-wide emissions where it is cheapest and fastest.

Boosting Market Liquidity and Government Funds

Adding power multiplies both the number of credits and the number of buyers. That creates deeper order books and steadier prices. With more trades, the market finds a fair carbon price that firms can plan around.

Why liquidity matters for India’s goals:

• Sharper price discovery: More participants and more volume reduce price swings. Developers, banks, and utilities can price projects with fewer surprises.

• Better incentives for clean projects: Reliable carbon revenue can close financing gaps for storage, green hydrogen off-take, transmission upgrades, and demand-side efficiency.

• Stronger public finances: As coverage grows, auctioning a share of credits and collecting compliance fees can build a green fund for grid upgrades and just transition support. A recent analysis projects the CCTS could raise about 500 billion dollars by 2050 if the coal-heavy power sector is included, reinforcing long-term fiscal gains for clean energy spending. See the projection here: India’s carbon market could raise $500 bln by 2050.

More sectors also cut the risk of credit droughts. When industry demand for credits spikes, supply from power efficiency and renewable-backed performance can balance the market. That stability helps India maintain progress even in tight years. For context on how power drives national emissions and why its inclusion changes the curve, review this sector analysis: India’s power-sector CO₂ trends.

Key Recommendations from the 2025 Paper

The paper’s message is clear: bring grid power into the CCTS now, use the rules India already has, and connect compliance with high-quality voluntary credits for renewables. This builds market depth fast, cuts emissions where it is cheapest, and keeps policy simple. For context and detailed measures, see the ASPI issue paper.

Steps to Integrate the Power Sector

A fast, credible rollout needs tight sequencing and clear roles. Start with data and baselines, then layer in trading and compliance.

• Set unit-level baselines: Use heat rate and emissions intensity per plant unit, adjusted for coal quality and load bands. Begin with larger coal units, then add the rest over two to three years.

• Use existing MRV pipes: Build on PAT and CEA reporting. Require continuous emissions monitoring systems for stacks, coal quality sampling, and fuel flow meters. Tie plant output to SCADA data for cross-checks.

• Publish MRV protocols: BEE should issue standard methods for heat rate, auxiliary power, and plant load factor adjustments. Keep calculation sheets simple and auditable.

• Update rules with the Ministry of Power: Align CEA regulations, the Grid Code, and dispatch rules so carbon performance data flows to the registry. CERC can codify trading and compliance calendars for generators and captive plants.

• Stand up a sector registry lane: The Grid Controller of India tags power-sector credits, with audit trails for unit IDs, fuel type, and operating hours. This prevents double counting with RECs and other instruments.

• Phase in compliance: Year 1, reporting only with shadow baselines. Year 2, partial obligations for plants above a size threshold. Year 3, full obligations with penalties for non-compliance.

• Guardrails for voluntary credits: Allow high-quality renewable offsets into compliance with limits. Tag credits to avoid overlap with RECs and state RPOs, and apply clear additionality tests. See a practical overview of the offset lane in CCTS from CEEW: India’s voluntary offset mechanism.

• Support transition finance: Use auctions or a small compliance fee to seed a fund for metering upgrades, efficiency retrofits, and flexible operation tools.

• Publish a price stability plan: Define a price collar, banking rules, and limited borrowing. Signal this early so utilities and banks can plan.

Example: A 500 MW coal unit with improved heat rate and better coal blending can beat its baseline, earn credits, and sell them to an older, less efficient plant. The market then rewards performance, not age.

Overcoming Challenges Ahead

Bringing power into CCTS is not trivial. It needs strong data, stable rules, and political support. The benefits outweigh the hurdles when you use the systems India already trusts.

• Technical readiness: CEMS coverage is uneven, and coal sampling can be weak. The fix is targeted, not massive. Prioritize high-emitting units for metering upgrades, use accredited labs, and add simple cross-checks between fuel data and generation.

• Data integrity: Some plants may face data gaps in early months. Start with a reporting-only year, run third-party verifications, and apply conservative baselines until data improves.

• Policy alignment: Dispatch rules and state regulations can clash with carbon incentives. Update MoP and CEA guidelines so flexible operation, cycling, and storage are valued in both dispatch and carbon accounting.

• Political buy-in: Coal-heavy states worry about costs and jobs. Use a transition fund for worker reskilling, repowering pilots, and grid investments in those regions. Phase-in keeps tariffs stable while plants adjust.

• Market confidence: Thin liquidity can rattle prices at launch. Including power adds scale from day one, which stabilizes price discovery. For design choices that support a steady market, see this practical guidance from Columbia SIPA: Lessons for structuring India’s carbon market.

The payoff is large. A bigger, cleaner grid cuts costs over time, lowers risk for lenders, and sends a clear carbon price across the economy. The paper’s core idea is simple: use the CCTS as the backbone, pull in power with phased obligations, and connect high-quality renewables through a guarded offset lane. This keeps ambition high and complexity low.

The Future of India's Carbon Market

India’s carbon market is moving from pilot phase to prime time. As of October 2025, the CCTS is live for nine core industries, with an approved offset lane for high-quality voluntary credits. The next big step is clear, bring grid power into the system and scale trading volume, price signals, and real emissions cuts. Do that quickly, and India can set the pace for emerging market carbon policy while staying on track for net zero by 2070.

A faster rollout matters for three reasons:

• Bigger coverage: Adding power captures the largest source of CO₂ and unlocks low-cost abatement.

• Deeper liquidity: More participants and more trades make prices steady and credible.

• Global relevance: A liquid, rules-based market positions India as a price maker, not a price taker.

Government Plans and Timeline

Policy is already in motion. The government adopted the CCTS in 2024 and confirmed a shift to a rate-based ETS model with phased onboarding from 2025. Official updates point to rapid regulatory build-out, tighter MRV, and expansion of sector coverage, including power. See the policy direction in this government brief on Carbon Pricing in India.

Here is what to expect next, and what the 2025 paper urges India to do now:

• Now to mid-2026: Consolidate the nine industrial sectors in compliance mode. Finalize detailed MRV protocols, registry tags, and exchange rules for smooth trading. Operationalize the approved voluntary offset lane with clear quality screens and limits.

• Power sector onboarding window: Begin with a reporting-only phase for large coal units, then move to partial obligations within 12 months. Full obligations follow once data is stable and cross-checked with grid records. This sequence lines up with the market design described by experts calling for near-term inclusion of power, see Strengthening India’s Carbon Credit Trading Scheme.

• Registry and safeguards: Tag power-sector credits by unit and fuel type. Prevent overlap with RECs and state RPOs. Maintain transparent issuance and retirement trails to protect integrity as volumes grow.

• Price tools and prudence: Publish a calendar for compliance and auctions, plus a price collar and banking rules. These tools keep price discovery healthy as new supply and demand arrive.

Why act fast? Every year the power sector sits outside the market, India leaves cheaper cuts on the table. Bringing power in now increases credit supply from efficient units, boosts demand from laggards, and drives a clearer carbon price for planning. It also improves India’s standing in global climate finance. A scalable, liquid market with strong MRV can attract cross-border capital, deepen clean energy investment, and help deliver the 2070 net zero path with lower system costs.

The opportunity is right in front of us. Lock the rules, stick to the timeline, and bring power into CCTS without delay.

Conclusion

Bringing the power sector into India’s Carbon Credit Trading Scheme turns a good market into a strong climate tool. It expands coverage where emissions are highest, deepens liquidity, and gives a clear carbon price that speeds coal-to-clean shifts. The 2025 paper makes the case plain, start with unit-level baselines, phase compliance, and tie credits to reliable MRV so every tonne counted is a tonne cut.

Stay close to policy updates, support green projects in your city, and back utilities and firms that publish solid carbon data. India can set the pace for clean power across emerging markets, with a bigger, fairer market that funds renewables, storage, and smarter grids. The path is ready, and India has the scale and talent to lead.