By : Vanga Sai Keerthan Reddy

1.      Introduction

India’s corporate environmental compliance landscape is expanding beyond conventional pollution-control obligations to include a distinct framework for greenhouse gas (GHG) emissions. The Carbon Credit Trading Scheme, 2023 (CCTS) introduces market-linked obligations for designated industrial entities, while enabling qualifying projects by non-obligated entities to participate through an offset mechanism. For businesses, the change raises questions of regulatory coverage, emissions accounting, verification, contractual risk and governance.

Carbon compliance does not replace established environmental obligations. Companies must continue to comply with applicable pollution-control laws and environmental approvals while determining whether additional carbon-related duties apply to their facilities. This article examines the legal framework and its practical implications for Indian corporates.

2.      Statutory and Regulatory Framework

The Energy Conservation Act, 2001, as amended by the Energy Conservation (Amendment) Act, 2022, provides the statutory basis for carbon-credit trading. In exercise of powers under section 14(w), the Central Government notified the CCTS on 28 June 2023. An amendment dated 19 December 2023 expressly developed the offset mechanism for eligible non-obligated entities. [1] [2]

The National Steering Committee for the Indian Carbon Market performs governance and oversight functions. The Bureau of Energy Efficiency (BEE) administers the scheme; Grid Controller of India Limited (Grid India) functions as registry; and the Central Electricity Regulatory Commission (CERC) regulates the purchase and sale of Carbon Credit Certificates (CCCs) within its statutory remit. The CERC (Terms and Conditions for Purchase and Sale of Carbon Credit Certificates) Regulations 2026 establish a regulatory framework for relevant trading arrangements. [3] [4]

The CCTS operates alongside the Environment (Protection) Act, 1986, Air (Prevention and Control of Pollution) Act, 1981, Water (Prevention and Control of Pollution) Act, 1974 and other applicable rules. A carbon-credit transaction cannot cure a failure to obtain required consents or comply with pollution limits.

 

1. BEE – CCTS 2023 and principal regulations  https://beeindia.gov.in/show_content.php?lang=1&level=2&lid=495&ls_id=461
2. CCTS amendment, S.O. 5369(E), 19 Dec 2023https://egazette.gov.in/WriteReadData/2023/250750.pdf?utm_source=chatgpt.com
3. Ministry of Power – CCTS institutional framework, 4 December 2025 https://www.pib.gov.in/PressReleasePage.aspx?PRID=2198780
4. CERC – Current regulations (including CCC regulations, 2026)  https://cercind.gov.in/current_reg.html

3.      Environmental Compliance and Carbon Compliance: The Distinction

Environmental compliance and carbon compliance address different regulatory concerns and operate under separate legal frameworks. Environmental compliance concerns the physical impact of operations on air, water and land. It covers pollution prevention, obtaining and maintaining consent, waste management and adherence to discharge standards, and is governed by pollution-control statutes, approvals and sector-specific rules. A breach may attract consequences under environmental law. Carbon compliance concerns greenhouse gas emissions. It involves accounting for emissions, meeting notified emission-intensity targets and meeting any applicable carbon credit obligations, and is governed by the Carbon Credit Trading Scheme (CCTS), the targets notified under it and the applicable monitoring and trading rules. Consequences of non-compliance are assessed under the relevant carbon-market framework and statutory provisions rather than general environmental law. An entity may therefore comply fully with one regime while remaining non-compliant under the other, so each must be assessed independently.

These regimes are complementary, not interchangeable. A company may satisfy conventional environmental consent requirements while falling short of a notified GHG emission-intensity target. Conversely, purchasing credits does not demonstrate compliance with environmental or climate-related disclosure obligations.

4.      Which Corporates Are Obligated?

Under the CCTS compliance mechanism, only entities specifically covered by the relevant notifications and assigned GHG emission-intensity (GEI) targets are obligated entities. GEI measures emissions relative to a defined unit of output rather than imposing a uniform cap on absolute emissions.

The Government announced that the notifications issued in October 2025 and January 2026 collectively brought 490 obligated entities across seven energy-intensive industrial sectors within the compliance mechanism: aluminum, cement, chlor-alkali, petroleum refining, petrochemicals, pulp and paper, and textiles. The January 2026 expansion covered an additional 208 entities, following an earlier group of 282. [5]

enterprise operating in one of these sectors is not automatically covered merely by its sector classification. It must examine the entity- and facility-specific schedules, the relevant compliance period, baseline and applicable target. Notified target schedules should be consulted directly before drawing a compliance conclusion.

Entities that outperform their notified GEI targets may qualify for CCC issuance, subject to prescribed monitoring, reporting, verification and issuance requirements. Entities that fail to

achieve a target must address the shortfall in accordance with the operative scheme and detailed procedures, including acquisition and surrender of eligible certificates where required.

The precise regulatory response depends on the applicable provisions; it should not be assumed that a generic purchase of voluntary credits satisfies an Indian compliance obligation.

• MoEFCC -490 obligated entities announcement, 22 January 2026  https://www.pib.gov.in/PressReleasePage.aspx?PRID=2217239

5.        Measuring and Reducing Emissions

Effective carbon compliance begins with reliable data. Relevant sources may include fuel combustion, industrial processes, electricity use and, for wider corporate sustainability reporting, activities throughout the value chain. Under widely used GHG accounting terminology, Scope 1 refers to direct emissions from owned or controlled sources; Scope 2 to indirect emissions from purchased energy; and Scope 3 to other value-chain emissions.

These categories are useful for enterprise-wide reporting, but they do not automatically determine the boundary or methodology under the CCTS. Where a specific regulatory calculation method, product definition, measurement boundary or verification protocol applies, it takes precedence for that compliance purpose. Businesses should maintain consistent fuel, electricity, production and emissions-factor records, with documented controls and audit trails.

Reduction measures may include energy-efficiency improvements, fuel switching, renewable power procurement, process upgrades and supplier engagement. Such measures should be supported by measured outcomes rather than assumptions based solely on capital expenditure.

6.      Compliance and Offset Mechanisms; Credit Trading

The CCTS has two distinct routes. Under the compliance mechanism, designated industrial entities must meet notified GEI targets. Under the offset mechanism, eligible non-obligated entities may seek registration of projects that reduce, remove or avoid GHG emissions, provided they follow approved methodologies and validation, monitoring and verification requirements.

Projects are not entitled to credits solely because they deliver apparent environmental benefits. Additionality, measurement methodology, approval conditions and independent verification are relevant to credit integrity and issuance. Project developers should check BEE’s current sectoral methodologies and procedures before investing or contracting. [6]

The CERC’s 2026 regulations provide the applicable purchase-and-sale framework for CCCs. Businesses should confirm the live market arrangements, registry status, certificate availability, trading eligibility and intended use before executing a transaction. Credit prices are not uniform: regulated certificates and voluntary-market credits should not be treated as equivalent instruments or assumed to have comparable prices.

Credits issued under independent voluntary standards, including Verra’s Verified Carbon Standard or Gold Standard, do not automatically qualify for surrender under India’s CCTS. Buyers should distinguish legal eligibility from environmental quality and from the permissibility of any public sustainability claim.

7.        Corporate Legal Implications and Risk Management

The transition to carbon-related obligations has consequences beyond technical emissions reporting. A corporate legal and compliance review should consider the following:

• BEE – Detailed compliance and offset procedures  https://beeindia.gov.in/show_content.php?lang=1&level=1&lid=309&ls_id=136

• Regulatory applicability: identify covered legal entities, installations, production boundaries, target periods and any entity-specific notifications.
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• Governance and accountability: designate internal owners for emissions data, management sign-off, records, verification coordination and compliance calendars.
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• Contractual allocation of risk: in credit purchase agreements, address title, delivery dates, registry transfer, invalidation or reversal, eligibility, representations, indemnities and dispute resolution.
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• Corporate disclosure: assess whether claims in sustainability reports, financing materials or marketing communications accurately distinguish actual emissions reductions from purchased credits.
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• Financial exposure: consider technology investment, verification expense, potential certificate acquisition costs and the implications of non-compliance under applicable rules.

These are risk-management considerations rather than a claim that every Indian company faces identical carbon obligations. A company should obtain a facility-specific legal and technical assessment where coverage or compliance methodology is uncertain.

8.        Due Diligence Before Purchasing Carbon Credits

Whether buying for a defined regulatory purpose or voluntarily, corporates should apply legal, technical and commercial diligence. Key issues include:

• Project credibility and the developer’s record, including independent validation or verification reports.
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• Additionality and the reliability of the underlying baseline and measurement methodology.
• Permanence and reversal risk, particularly for land-use, forestry and carbon-storage projects.
• Unique registry identifiers, ownership history, retirement status and double-counting risks.
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• Where relevant, Article 6 host-country authorisations, corresponding adjustments and the precise intended claim.
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• Suitability of the credit for the buyer’s legal purpose; price, transaction costs, delivery timing and recourse against invalid credits.
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• Environmental and social safeguards, including biodiversity, land rights and local-community considerations.

The central distinction is between a credit that may be commercially attractive, one that has credible environmental attributes, and one that is legally eligible for the buyer’s intended use. Those questions require separate answers. Corporate Opportunities and Implementation Challenges

Carbon compliance may create incentives to modernise processes, reduce energy costs and improve emissions governance. Entities performing better than their targets may become eligible for certificate issuance, while qualifying offset-project developers may access additional avenues to monetize reductions. Neither outcome is automatic: eligibility and issuance remain subject to the applicable framework.

Implementation challenges include fragmented plant-level data, inconsistent calculation practices, verification readiness, technology costs and evolving trading infrastructure. Separately, listed companies covered by SEBI’s Business Responsibility and Sustainability Reporting framework must consider relevant sustainability disclosures; those duties should not be confused with the CCTS obligations of notified industrial entities.

9.      International Comparison and Cross-Border Relevance

India’s compliance mechanism relies on notified emissions-intensity targets for identified entities. The EU Emissions Trading System instead operates primarily through a cap-and-trade structure, requiring covered entities to surrender allowances against verified emissions. California likewise uses an economy-wide cap-and-invest framework with jurisdiction-specific compliance instruments. Differences in design mean that an instrument recognised in one market cannot automatically be used to discharge obligations in another.

For Indian businesses involved in international supply chains or cross-border transactions, the lesson is to assess each relevant legal regime separately. International transfers under Article 6 of the Paris Agreement may require host-country authorisation and corresponding accounting measures, depending on the nature of the transaction and claim.

10.  Conclusion

The emergence of India’s carbon market adds a distinct layer to corporate regulatory compliance. The immediate legal task is to identify whether a business is a notified obligated entity and, if so, to determine the applicable facility-specific targets, methodologies and reporting requirements. For other businesses, voluntary offset participation and carbon-credit procurement require equally careful evaluation of project quality, contractual protection and the accuracy of environmental claims.

Ultimately, effective compliance depends on reliable emissions measurement, informed governance and demonstrable reduction strategies. Carbon credits can serve a defined purpose within that framework; they are not a substitute for compliance with environmental laws or for genuine operational decarbonization.