Why in News?

The United Kingdom has recognised India's Carbon Credit Trading Scheme (CCTS) as a qualifying carbon pricing mechanism under its Carbon Border Adjustment Mechanism (CBAM), allowing Indian exporters to receive carbon price relief.

  • The move follows technical engagement between India and the U.K.
  • Cooperation will continue through frameworks such as the U.K.–India Energy Memorandum of Understanding (MoU) and the Partnership for Market Implementation (PMI).

Significance of U.K.'s Recognition of India's CCTS

  • Impact on Indian Exporters: U.K. importers of eligible Indian goods covered under CBAM can claim relief corresponding to the effective carbon price already paid under India's CCTS, reducing the additional CBAM liability on Indian exports.
  • Avoiding Double Carbon Pricing: The recognition aligns with the principle of preventing double taxation of emissions, as products that have already borne an eligible carbon price in the country of origin receive corresponding adjustment under CBAM.
  • Significance:
  • Strengthens India's participation in global carbon markets.
  • Supports export competitiveness of Indian goods.
  • Provides greater certainty to carbon-intensive industries.
  • Limitation: Actual CBAM relief will depend on the effective carbon price paid by the exporter and compliance with the evidence and verification requirements prescribed under U.K. CBAM rules.

Key Facts About the Carbon Credit Trading Scheme (CCTS)

  • About: CCTS is a market-based mechanism under the Indian Carbon Market (ICM) that aims to reduce, remove, or avoid greenhouse gas (GHG) emissions by pricing emissions through the trading of Carbon Credit Certificates (CCCs).
  • Transition from PAT to CCTS:
  • The earlier Perform, Achieve and Trade (PAT) scheme focused on improving energy efficiency through Energy Saving Certificates (ESCerts).
  • CCTS shifts the focus towards reducing Greenhouse Gas Emission Intensity (GEI) by setting sector-specific emission intensity targets.
  • Mechanisms under CCTS:
  • Compliance Mechanism: Requires obligated energy-intensive industries to meet notified GEI targets. Entities exceeding targets receive CCCs, while others can purchase credits to meet obligations.
  • Offset Mechanism: Allows non-obligated entities to voluntarily register approved emission reduction activities for issuance of CCCs.
  • Sectors Covered: Initially covers major emission-intensive sectors such as:
  • Aluminium
  • Cement
  • Chlor-alkali
  • Pulp and paper
  • Iron and steel
  • Fertilizer
  • Petroleum refineries
  • Petrochemicals
  • Textiles
  • Note: Although the thermal power sector contributes a significant share of India's emissions, thermal power plants have not yet been transitioned into the CCTS compliance mechanism.
  • Regulatory Oversight:
  • Bureau of Energy Efficiency (BEE) – Administrator
  • National Steering Committee for Indian Carbon Market
  • Grid Controller of India Limited – Registry
  • Central Electricity Regulatory Commission (CERC) – Regulatory support
  • Significance: CCTS supports India's climate objectives by encouraging clean technologies, energy efficiency, low-carbon technologies, renewable energy adoption, and emission reduction measures.

Carbon Border Adjustment Mechanism (CBAM)

  • CBAM is a climate trade mechanism that imposes carbon costs on imported goods based on their embedded greenhouse gas emissions.
  • It aims to prevent carbon leakage — the shifting of carbon-intensive production to countries with lax climate rules.
  • Recognition of domestic carbon pricing mechanisms (like India's CCTS) allows exporters to offset CBAM liability.

Constitutional/Legal Framework

  • CCTS was introduced under the Energy Conservation Act, 2001, as amended in 2022, which empowered the establishment of India's carbon market framework.

Previous Year Questions (UPSC CSE)

Prelims 2023:

  • Statement-I: Carbon markets are likely to be one of the most widespread tools in the fight against climate change.
  • Statement-II: Carbon markets transfer resources from the private sector to the State.
  • Answer: (b) — Both statements are correct, but Statement-II is not the correct explanation of Statement-I.

Prelims 2009:

  • The concept of carbon credit originated from the Kyoto Protocol.

Way Forward

  • India must strengthen measurement, reporting, and verification (MRV) systems to maximise CBAM relief benefits.
  • Expanding CCTS coverage (including the thermal power sector) will deepen the Indian Carbon Market.
  • Similar recognition from other trading partners (e.g., the EU under its CBAM) could further protect Indian export competitiveness.