The IEEFA Report on India's CCTS – Roadmap for a Strong Carbon Market Framework
Introduction: A Defining Moment for India's Carbon Market
India's Carbon Credit Trading Scheme (CCTS) is at a defining moment. As the scheme moves into its early implementation phase, the choices made by regulators, policymakers, and market participants over the next two to five years will shape how far the CCTS develops into a market capable of guiding capital-intensive industrial investment over 15- to 30-year horizons.
A new report by the Institute for Energy Economics and Financial Analysis (IEEFA), titled 'The road ahead for India's Carbon Credit Trading Scheme', produced in collaboration with the Environmental Defense Fund (EDF), maps the trajectory of this next phase and makes recommendations on the decisions that will shape the scheme's trajectory.
The report comes at a critical juncture. India's steel and aluminium exports to the European Union fell 24.4% in FY2025, with steel alone down 35.1%, before any CBAM financial obligation had taken effect. The decline, which suggests European buyers are already reorienting toward lower-emission producers, underscores what is at stake as India's CCTS enters its operational phase.
This guide provides a comprehensive analysis of the IEEFA-EDF report, its key findings, recommendations, and what they mean for India's carbon market.
The IEEFA-EDF Report: An Overview
The Report
The report, 'The road ahead for India's Carbon Credit Trading Scheme', was produced by the Institute for Energy Economics and Financial Analysis (IEEFA) in collaboration with the Environmental Defense Fund (EDF).
The Purpose
The report maps the trajectory of the CCTS's next phase and makes recommendations on the decisions that will shape the scheme's trajectory.
The Structure
The analysis is structured around four interconnected themes:
| Theme | Description |
|---|---|
| 1. Financial Market Participation | How financial intermediaries can support market depth and price discovery |
| 2. Responding to Border Carbon Costs | How India should respond to CBAM and other border carbon costs |
| 3. Sectoral Expansion | Implications of incorporating additional sectors, including power |
| 4. Managing Offsets and Article 6 | Safeguarding market integrity while leveraging international opportunities |
The Timing
The report was released in July 2026, as the CCTS enters its operational phase.
The Significance
The report draws on experience from comparable systems worldwide, providing valuable lessons for India's carbon market development.
The CBAM Wake-Up Call: Export Declines Before Implementation
The Numbers
India's steel and aluminium exports to the European Union fell 24.4% in FY2025, with steel alone down 35.1%, before any CBAM financial obligation had taken effect.
What This Means
The decline, which suggests European buyers are already reorienting toward lower-emission producers, underscores what is at stake as India's CCTS enters its operational phase.
The CBAM Connection
| Metric | Value |
|---|---|
| Combined steel/aluminium exports decline | 24.4% |
| Steel exports decline | 35.1% |
| CBAM effective date | January 1, 2026 |
| Timing | Before any CBAM financial obligation had taken effect |
The Implication
European buyers are already factoring carbon into their purchasing decisions, even before CBAM's financial obligations kicked in. This means Indian exporters cannot wait — the market is already shifting.
The Report's Focus
Irrespective of the ongoing international discussions around CBAM, the report's focus is on domestic market design. "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".
The Four Interconnected Themes
The report's analysis is structured around four interconnected themes.
Theme 1: Financial Market Participation
| Aspect | Description |
|---|---|
| Focus | How financial intermediaries can support market depth and price discovery |
| Key Insight | Financial intermediaries matter for continuous price discovery and hedging |
| Precondition | Genuine scarcity and credible enforcement must be established first |
Theme 2: Responding to Border Carbon Costs
| Aspect | Description |
|---|---|
| Focus | How India should respond to CBAM and other border carbon costs |
| Key Insight | Domestic carbon costs must be calibrated to interact effectively with CBAM |
| Challenge | Ensuring Indian exporters remain competitive |
Theme 3: Sectoral Expansion
| Aspect | Description |
|---|---|
| Focus | Implications of incorporating additional sectors |
| Key Insight | Power sector incorporation has significant implications |
| Challenge | Managing sectoral expansion while maintaining market integrity |
Theme 4: Managing Offsets and Article 6
| Aspect | Description |
|---|---|
| Focus | Safeguarding market integrity while leveraging international opportunities |
| Key Insight | Offsets and Article 6 must be managed carefully |
| Challenge | Balancing international opportunities with domestic integrity |
Theme 1: Financial Market Participation
The Core Insight
"Every major Emissions Trading System (ETS) began with compliance entities only. The CCTS is right to do the same," notes the report.
Why Financial Intermediaries Matter
"Financial intermediaries matter eventually for what they make possible: continuous price discovery and the hedging that gives firms confidence to commit to large decarbonisation investments over long horizons".
The Precondition
"A market that only settles positions around compliance deadlines would struggle to provide that. The precondition for financial intermediaries' inclusion is genuine scarcity and credible enforcement, and that is what the CCTS needs to establish first".
The Lesson from Korea
In Korea, restricting early participation to compliance entities, alongside a surplus of allowances, left trading thin and prices subdued in the scheme's initial years.
The Lesson from PAT
India's own Perform, Achieve and Trade (PAT) scheme, an important step in building market experience, saw certificate trading fall short of the volumes mandated.
The Key Takeaway
"Both point to the same lesson: market depth and price signals depend first on whether targets create genuine compliance pressure, and then on whether that pressure is consistently maintained".
Theme 2: Responding to Border Carbon Costs
The CBAM Challenge
India's steel and aluminium exports to the EU fell 24.4% in FY2025, with steel alone down 35.1%, before any CBAM financial obligation had taken effect.
The Report's Focus
Irrespective of the ongoing international discussions around CBAM, the report's focus is on domestic market design.
The Key Question
"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".
The Strategic Imperative
| Aspect | Implication |
|---|---|
| CBAM recognition | EU may recognise carbon prices paid through India's CCTS |
| Domestic calibration | CCTS must be calibrated to interact effectively with CBAM |
| Export competitiveness | Indian exporters must remain competitive in EU markets |
The Opportunity
A well-designed CCTS can:
- Demonstrate carbon compliance to EU buyers
- Reduce CBAM liability through carbon price offset
- Keep carbon value within India
- Support domestic decarbonisation
Theme 3: Sectoral Expansion
Current Coverage
The compliance mechanism of the ICM now covers 490 obligated entities across India's most emission-intensive industries.
The Sectors Covered
| Sector | Status |
|---|---|
| Aluminium | Notified |
| Cement | Notified |
| Chlor-Alkali | Notified |
| Pulp and Paper | Notified |
| Petroleum Refining | Notified |
| Petrochemicals | Notified |
| Textiles | Notified |
| Iron and Steel | Draft notified |
| Fertilizer | Pending |
The Power Sector Question
The report examines the implications of incorporating the power sector. This is significant because:
- The power sector is India's largest source of emissions
- Power sector incorporation would dramatically expand the CCTS
- It would create new compliance obligations and opportunities
The Expansion Challenge
| Challenge | Description |
|---|---|
| Market integrity | Ensuring expansion doesn't compromise market integrity |
| Compliance pressure | Maintaining genuine scarcity and credible enforcement |
| Sectoral diversity | Managing different sectoral characteristics |
Theme 4: Managing Offsets and Article 6
The Offsets Challenge
The report examines managing offsets and Article 6 (of the Paris Agreement) opportunities while safeguarding the integrity of India's carbon market and sovereign mitigation goals.
Why Offsets Matter
| Aspect | Importance |
|---|---|
| Market liquidity | Offsets can increase market liquidity |
| Cost containment | Offsets can help contain compliance costs |
| International engagement | Article 6 enables international cooperation |
The Integrity Concern
Offsets must be managed carefully to ensure:
- Real, additional, and permanent emission reductions
- No double counting
- Alignment with India's mitigation goals
- Credibility of the carbon market
The Article 6 Opportunity
Article 6 of the Paris Agreement provides for:
- Cooperative approaches to climate action
- Internationally transferred mitigation outcomes (ITMOs)
- Cross-border crediting
- Transparency and accountability mechanisms
The Report's Recommendation
The report emphasises the need to safeguard the integrity of India's carbon market and sovereign mitigation goals while leveraging Article 6 opportunities.
Lessons from Korea and India's PAT Scheme
The Korea Experience
In Korea, restricting early participation to compliance entities, alongside a surplus of allowances, left trading thin and prices subdued in the scheme's initial years.
| Lesson | Implication for India |
|---|---|
| Compliance entities only initially | CCTS is right to start with compliance entities only |
| Surplus of allowances | Avoid creating a surplus that suppresses prices |
| Thin trading | Ensure sufficient market depth for effective price discovery |
The PAT Experience
India's own Perform, Achieve and Trade (PAT) scheme, an important step in building market experience, saw certificate trading fall short of the volumes mandated.
| Lesson | Implication for India |
|---|---|
| Trading volumes | Ensure sufficient trading volumes for market functioning |
| Mandate enforcement | Ensure mandated volumes are actually traded |
| Market experience | Build on PAT experience while addressing its shortcomings |
The Shared Lesson
"Both point to the same lesson: market depth and price signals depend first on whether targets create genuine compliance pressure, and then on whether that pressure is consistently maintained".
The Importance of Genuine Scarcity and Credible Enforcement
The Core Principle
"The precondition for financial intermediaries' inclusion is genuine scarcity and credible enforcement, and that is what the CCTS needs to establish first".
What "Genuine Scarcity" Means
| Aspect | Description |
|---|---|
| Tight targets | Emission intensity targets must create genuine compliance pressure |
| No surplus | Avoid creating a surplus of allowances that suppresses prices |
| Real constraints | Targets must represent real constraints on emissions |
What "Credible Enforcement" Means
| Aspect | Description |
|---|---|
| Penalties | Meaningful penalties for non-compliance |
| Monitoring | Robust monitoring of emissions and compliance |
| Transparency | Transparent reporting and enforcement |
Why It Matters
| Outcome | Result |
|---|---|
| With scarcity and enforcement | Market functions effectively; price signals guide investment |
| Without scarcity and enforcement | Market is thin; prices are subdued; investment signals are weak |
MRV Systems: The Foundation of Market Credibility
The Importance of MRV
"MRV systems critical for market credibility". Strong Monitoring, Reporting and Verification (MRV) is essential for market functioning.
What MRV Does
| Function | Description |
|---|---|
| Monitoring | Tracking emissions and production data |
| Reporting | Submitting verified emissions data |
| Verification | Independent third-party verification |
Why MRV Matters
| Aspect | Importance |
|---|---|
| Credibility | MRV ensures emissions reductions are real |
| Trust | MRV builds trust in the carbon market |
| Compliance | MRV enables compliance assessment |
| Investment | MRV gives investors confidence |
The Indian Carbon Market Portal
The Indian Carbon Market Portal, launched on March 21, 2026, serves as the central digital backbone for MRV, enabling end-to-end processes from entity registration to the issuance of CCCs.
The CCTS and CBAM Interaction
The CBAM Context
India's steel and aluminium exports to the EU fell 24.4% in FY2025, with steel alone down 35.1%, before any CBAM financial obligation had taken effect.
The Report's Focus
Irrespective of the ongoing international discussions around CBAM, the report's focus is on domestic market design.
The Key Question
"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".
The Strategic Imperative
| Aspect | Implication |
|---|---|
| CBAM recognition | EU may recognise carbon prices paid through India's CCTS |
| Domestic calibration | CCTS must be calibrated to interact effectively with CBAM |
| Export competitiveness | Indian exporters must remain competitive in EU markets |
The Opportunity
A well-designed CCTS can:
- Demonstrate carbon compliance to EU buyers
- Reduce CBAM liability through carbon price offset
- Keep carbon value within India
- Support domestic decarbonisation
The Power Sector Question
The Report's Focus
The report examines the implications of incorporating the power sector.
Why the Power Sector Matters
| Factor | Significance |
|---|---|
| Emissions share | The power sector is India's largest source of emissions |
| Scale | Power sector incorporation would dramatically expand the CCTS |
| Complexity | Power sector has unique characteristics |
The Implications
| Aspect | Implication |
|---|---|
| Market size | Significant expansion of the carbon market |
| Compliance obligations | New obligations for power sector entities |
| Price signals | Stronger price signals for decarbonisation |
| Integration | Integration with existing power market regulations |
The Challenge
| Challenge | Description |
|---|---|
| Market integrity | Ensuring expansion doesn't compromise market integrity |
| Compliance pressure | Maintaining genuine scarcity and credible enforcement |
| Regulatory coordination | Coordinating with existing power sector regulations |
Recommendations for Policymakers
Based on the Report's Findings
| Recommendation | Rationale |
|---|---|
| Establish genuine scarcity | Targets must create genuine compliance pressure |
| Ensure credible enforcement | Meaningful penalties and robust monitoring |
| Build robust MRV systems | Foundation of market credibility |
| Manage sectoral expansion carefully | Maintain market integrity while expanding |
| Calibrate CCTS for CBAM | Ensure domestic carbon costs interact effectively with CBAM |
| Safeguard offset integrity | Real, additional, and permanent reductions |
The Timing Imperative
"Over the next two to five years, choices made by regulators, policymakers and market participants on market architecture, compliance obligations and price formation will shape how far the CCTS develops into a market capable of guiding capital-intensive industrial investment over 15- to 30-year horizons".
Recommendations for Market Participants
Based on the Report's Findings
| Recommendation | Rationale |
|---|---|
| Prepare for compliance | Understand your obligations and assess your position |
| Invest in MRV systems | Robust monitoring and reporting is essential |
| Build internal carbon expertise | Understand carbon pricing and its implications |
| Engage with policymakers | Provide input on market design |
| Plan for the long term | Carbon markets operate on 15- to 30-year horizons |
| Consider CBAM exposure | Prepare for border carbon costs |
The Strategic Opportunity
Market participants who:
- Understand the CCTS
- Invest in compliance
- Build internal expertise
- Engage with policymakers
- Plan for the long term
Will be well-positioned to benefit from India's carbon market.
The Road Ahead: 15- to 30-Year Horizons
The Long-Term Perspective
"Over the next two to five years, choices made by regulators, policymakers and market participants on market architecture, compliance obligations and price formation will shape how far the CCTS develops into a market capable of guiding capital-intensive industrial investment over 15- to 30-year horizons".
Why This Matters
| Aspect | Importance |
|---|---|
| Investment decisions | Carbon markets guide capital-intensive industrial investment |
| Long-term planning | 15- to 30-year investment horizons require market certainty |
| Industrial transformation | Carbon markets can drive industrial decarbonisation |
The Key Decisions
| Decision Area | Impact |
|---|---|
| Market architecture | Shapes how the market functions |
| Compliance obligations | Determines compliance pressure |
| Price formation | Determines carbon price signals |
The Opportunity
India has a unique opportunity to build a carbon market that:
- Guides long-term industrial investment
- Supports decarbonisation
- Maintains export competitiveness
- Creates economic value
How Carboned.in Can Help
At Carboned.in, we help market participants navigate the CCTS with clarity and confidence, informed by the insights of the IEEFA-EDF report.
Our Services
| Service | What We Do |
|---|---|
| Compliance Assessment | Understand your obligations and assess your position |
| MRV Systems | Help you build robust monitoring and reporting systems |
| Gap Analysis | Calculate your shortfall and develop a mitigation strategy |
| Credit Procurement | Help you buy CCCs at the best price |
| CBAM Readiness | Assess your exposure and develop a mitigation strategy |
| Regulatory Advisory | Stay informed about CCTS developments |
| Strategic Planning | Plan for the long-term with 15- to 30-year horizons |
Why Choose Carboned.in?
| Reason | Why It Matters |
|---|---|
| Legal Expertise | Led by Siddharth Gupta, Advocate, Calcutta High Court |
| Regulatory Knowledge | Deep understanding of CCTS, BEE, and CERC |
| Strategic Perspective | Long-term view aligned with IEEFA-EDF recommendations |
| End-to-End Support | From assessment to compliance |
Your first consultation is completely free. No obligation. Just honest advice.
Conclusion
The IEEFA-EDF report provides a valuable roadmap for India's carbon market development. The choices made over the next two to five years will shape the CCTS for decades to come.
Key Takeaways
| Aspect | What You Need to Know |
|---|---|
| Export Decline | Steel/aluminium exports down 24.4% in FY2025 |
| Four Themes | Financial participation, CBAM response, sectoral expansion, offsets |
| Key Lesson | Genuine scarcity and credible enforcement are essential |
| MRV | Critical for market credibility |
| Time Horizon | 15- to 30-year investment horizons |
| CBAM Interaction | How CCTS interacts with CBAM recognition is key |
The Choice Is Yours
| Option | Outcome |
|---|---|
| Act now | Understand the CCTS, build compliance capability, prepare for the long term |
| Wait and see | Miss opportunities, face higher costs, lose competitive advantage |
How Carboned.in Can Help
At Carboned.in, we help market participants navigate the CCTS with clarity and confidence.
- Compliance Assessment: Understand your obligations
- MRV Systems: Build robust monitoring and reporting
- Gap Analysis: Calculate your shortfall
- Credit Procurement: Buy CCCs at the best price
- CBAM Readiness: Protect export competitiveness
- Strategic Planning: Plan for the long term
Your first consultation is completely free. No obligation. Just honest advice.
How Carboned.in can help
Our team covers every dimension of India's carbon market — pick the service that matches where you are.
Frequently Asked Questions
What is the IEEFA-EDF report?+
A report by the Institute for Energy Economics and Financial Analysis in collaboration with the Environmental Defense Fund, mapping the trajectory of India's CCTS.
What are the four interconnected themes?+
Financial market participation, responding to border carbon costs, sectoral expansion, and managing offsets and Article 6.
What happened to India's steel and aluminium exports?+
They fell 24.4% in FY2025, with steel alone down 35.1%, before any CBAM financial obligation had taken effect.
What is the lesson from Korea?+
Restricting early participation to compliance entities, alongside a surplus of allowances, left trading thin and prices subdued.
What is the shared lesson from Korea and PAT?+
Market depth and price signals depend on targets creating genuine compliance pressure, consistently maintained.
What is the precondition for financial intermediaries' inclusion?+
Genuine scarcity and credible enforcement.
Why are MRV systems important?+
They are critical for market credibility.
What is the report's focus on CBAM?+
How the EU's recognition of carbon prices will interact with India's market design.
What is the time horizon for the CCTS?+
The choices made now will shape the market over 15- to 30-year horizons.
How can Carboned.in help?+
We provide compliance assessment, MRV systems, gap analysis, credit procurement, CBAM readiness, and strategic planning.
Siddharth Gupta is the founder of Carboned.in and specialist counsel for India's carbon compliance framework — advising obligated entities, project developers, and buyers on CCTS, CR-I registration, and credit transactions.
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