Carbon Credit Trading in India: A Business Opportunity Guide for Foreign Investors in 2025
Introduction – Unlocking India's Carbon Value
India is now poised to convert carbon emissions into commercial value like never before. In 2025, the Indian government's newly framed Carbon Credit Trading Scheme (CCTS) expects to issue hundreds of millions of carbon credit certificates (CCCs) and trade volumes are projected to surpass US $2 billion by the end of the decade. For foreign investors seeking entry into India's decarbonisation economy, this nascent market offers first-mover advantage, regulatory clarity and alignment with global sustainability imperatives. But success requires understanding how the scheme works, what sectors are involved and how to navigate the evolving regulatory terrain.
Advantage – Why This Is a Golden Opportunity
India's advantage lies in its scale and cost-efficiency. With annual emissions of approximately 2.6 billion tonnes CO₂-equivalent in 2019, India offers high abatement potential as industry and infrastructure expand. For foreign investors, three major benefits stand out:
- High abatement potential – Many Indian industries are yet to deploy cutting-edge decarbonisation, so additional emissions reductions remain available.
- Low cost base – Renewable energy and energy-efficiency projects in India are significantly more cost-effective than equivalent projects in developed markets, improving credit generation economics.
- Regulatory support – The Energy Conservation (Amendment) Act 2022 legally enabled the CCTS, and the Bureau of Energy Efficiency (BEE) is the administrator of the Indian carbon market.
For example, large export-oriented manufacturers facing the Carbon Border Adjustment Mechanism (CBAM) can monetise credits from decarbonisation in India and offset import-tariff risks — a pain-point for many foreign investors entering India's manufacturing base. The possibility to either trade credits or embed them in global supply-chain strategies offers a compelling advantage.
What is the Carbon Credit Trading Scheme (CCTS)?
The Carbon Credit Trading Scheme (CCTS) is India's flagship regulatory framework designed to promote environmental sustainability while creating economic opportunities for businesses.
Notified by the Ministry of Power in June 2023 and implemented through the Bureau of Energy Efficiency (BEE), the scheme allows eligible companies to earn, buy, and sell carbon credits based on the greenhouse gas emissions they reduce or offset.
Each carbon credit represents one metric ton of CO₂-equivalent emissions reduced or sequestered. Companies exceeding regulatory compliance targets can sell their excess credits to other firms that are struggling to meet emission limits, creating a market-driven mechanism for environmental accountability.
The scheme is also aligned with India's commitments under the Paris Agreement, ensuring that businesses not only achieve cost-effective emissions reductions but also participate in global carbon markets. For foreign investors, CCTS offers a transparent and regulated platform to invest in carbon credits, partner with local companies, and access incentives for sustainable projects.
CCTS integrates with digital trading platforms, making transactions faster, auditable, and compliant with Indian law. Moreover, the government provides technical support, standardized verification procedures, and a clear reporting framework, which reduces risks for investors and promotes confidence in the market.
In essence, the CCTS is both an environmental initiative and a business opportunity, combining regulatory oversight with market dynamics to encourage sustainable growth while offering a new revenue stream for forward-looking investors.
How the CCTS Scheme Works and the Sectors That Were Notified
The CCTS works via two parallel mechanisms: a compliance market for large industrial emitters and a voluntary offset market for other project-based activities. Under the compliance mechanism, entities in covered sectors receive greenhouse-gas (GHG) emission-intensity targets and can earn CCCs if they outperform those benchmarks. Underperformance requires surrendering or purchasing CCCs.
In June 2025 the scheme officially notified that nine energy-intensive sectors would be covered: aluminium, chlor-alkali, cement, fertilisers, iron & steel, petrochemicals, petroleum/refining, pulp & paper and textiles. Foreign investors can register decarbonisation projects under the voluntary mechanism, using methodologies approved by the government.
For example, in March 2025, the Ministry of Power approved eight methodologies including green hydrogen, renewable-energy generation, industrial energy-efficiency, and mangrove afforestation.
The key operational insight is: you invest in or structure a project that reduces emissions, you earn CCCs; those credits can then be sold or traded either domestically or internationally, if the infrastructure allows. For foreign investors, aligning early with methodology design, project registration and offtake agreements is essential.
CCTS Implementation Timeline and Targets
India's rollout of the CCTS is phased and deliberate. In July 2024 the detailed procedures for the compliance mechanism were framed, following the regulatory amendment in August 2022. The first targets for four sectors (aluminium, cement, chlor-alkali, pulp & paper) were notified in October 2025, covering FY 2025-26 and FY 2026-27.
Trading is expected to commence in the second half of 2026. For foreign investors, this means the window for early project registration is open now — under India's CCTS, covered entities have baseline year 2023-24, and for FY 2025-26 the required emission-intensity reductions average around 2-3%. First-phase targets become more stringent in FY 2026-27, with certain sectors facing reductions up to approximately 7.6%.
The 9 Sectors Under CCTS Compliance
Aluminium
The aluminium sector is highly energy-intensive, with electricity accounting for nearly 50% of production costs. Companies like Hindalco and NALCO are leading in renewable integration and waste heat recovery. Expected reduction targets are 4–6% by FY 2026-27, opening opportunities in green alumina and low-carbon refining.
Chlor-Alkali
Produces chlorine, caustic soda, and hydrogen, with large CO₂ emissions due to electrolysis. The sector is shifting to membrane cell technology and green hydrogen. Companies such as Tata Chemicals and DCW Ltd. are piloting renewable-powered processes.
Cement
Contributes roughly 8% of India's CO₂ emissions, mainly from clinker production. Under CCTS, a 7.6% reduction target by FY 2026-27 is set. Companies adopt clinker factor reduction, alternative fuels, blended cements, and CCUS technologies. Investors can finance energy-efficient kilns or low-carbon materials to generate CCCs.
Fertilisers
Significant N₂O emissions; green hydrogen-based ammonia is the main decarbonisation path. IFFCO and RCF are integrating green hydrogen.
Iron & Steel
Second-largest industrial emitter, responsible for 12% of industrial CO₂. Reduction targets are 6–7%, with transitions to EAFs, scrap recycling, and hydrogen-based DRI. Tata Steel and JSW Steel are leading green steel projects.
Petrochemicals
Emits CO₂ and VOCs; can reduce emissions via process electrification, energy-efficient catalysts, and bio-based feedstocks.
Petroleum Refining
High emissions from combustion, flaring, hydrogen production; companies like IOCL, BPCL, Reliance focus on energy management, flaring reduction, and renewable integration.
Pulp & Paper
Methane and CO₂ emissions from biomass and fossil fuels; adopting biomass boilers, wastewater reuse, and efficient pulping creates tradable CCCs.
Textiles
Export-oriented, with scope 1 & 2 emissions; reduction target 2–3%. Renewable energy, low-emission dyeing, and wastewater reuse help generate carbon credits.
Case Study: JSW Steel's 2025 Green Steel Initiative
In 2025, JSW Steel, one of India's leading steel manufacturers, announced a landmark green steel initiative aimed at reducing its carbon intensity in line with emerging CCTS compliance requirements. The project involves transitioning a portion of its production to hydrogen-based direct reduced iron (DRI) technology, combined with the use of scrap-based electric arc furnaces (EAFs). These measures are expected to cut emissions by up to 6–7%, directly aligning with the first-phase CCTS targets for the iron and steel sector.
This initiative also integrates renewable power sourcing for captive operations, and JSW Steel has partnered with international technology providers for state-of-the-art emission monitoring and energy optimisation. The project has attracted attention from foreign investors seeking to purchase carbon credits generated by high-performing industrial units, illustrating a tangible pathway for monetising decarbonisation efforts.
The success of JSW Steel's pilot project demonstrates how Indian companies can leverage CCTS incentives while contributing to the country's net-zero ambitions. It also serves as a benchmark for other industrial players and foreign investors, showing that strategic investments in low-carbon technologies can yield both environmental and financial returns. This case underlines the enormous potential for foreign participation in India's carbon credit market, particularly in sectors with large-scale, measurable emission reductions.
Why the Carbon Credit Trading Scheme (CCTS) Matters
The scheme aligns with climate-finance, supply-chain decarbonisation, and export competitiveness. India's NDC mandates 45% reduction in emission-intensity by 2030 and net-zero by 2070. Global regulation like CBAM will penalise high-emission imports from 2026. For example, in January 2025, Google signed a deal with Varaha for 100,000 tCO₂e credits from converting agricultural waste to biochar.
Challenges and the Road Ahead
Challenges include problematic credits with poor additionality and MRV, delays in target-setting, and navigating FDI regulations. For foreign investors, ensuring rigorous MRV, aligning offtake agreements, and managing price risk is key. Early entrants gain expertise, relationships, and cost-efficient projects ahead of peers.
Case Study: NABARD's Pilot Carbon Credit Project in Karnataka
In 2025 India's National Bank for Agriculture and Rural Development (NABARD) launched a pilot in Koppal district, Karnataka, involving 3,500 mango-farmers in biomass-management and tree-plantation to generate carbon credits. Funded in partnership with Netherlands-based Rabo Bank, the initiative illustrates how carbon credit projects can reach underserved sectors, involve foreign finance and create tradable units of removal. For foreign investors this offers a template: combine local natural-climate-solutions projects with global offtake for credits. While farmer communication and verification delay remains a pain-point, the project signals India's breadth of opportunity beyond heavy industry.
Guide Section: 5-Step Investor Toolkit
Foreign investors can strategically enter India's carbon credit market by following a structured approach. First, select a project aligned with approved CCTS methodologies, such as renewable energy, green hydrogen, afforestation, or industrial energy-efficiency retrofits. Second, set up a joint venture or project company in India, navigating FDI and licensing requirements. Third, engage an accredited MRV provider to ensure emissions reductions are verified and compliant. Fourth, secure credit-offtake agreements with domestic or international buyers to lock in revenue. Finally, plan a trading or exit strategy: once the CCTS registry and trading platform launch in late 2026, investors can monetise Carbon Credit Certificates (CCCs) through exchanges or bilateral trades, converting environmental impact into financial returns.
Recent Notifications/Updates
In June 2025, BEE published draft rules for the registry and trading platform under CCTS. April-June 2025 saw notifications for nine sectors, and public consultation on emission-intensity targets.
Unlocking India's Carbon Credit Potential
For foreign investors, CCTS presents a convergence of climate finance and business opportunity. With legal clarity, sector coverage, project types, and global demand surging, the next 18–24 months are pivotal. Engage early, build credibility, structure your project for credit generation, and stay ahead of the curve. CrossVentura supports entity setup, project structuring, and offtake strategy.