How India Turned Carbon Into Property

Carbon is weightless, invisible, and until recently, owned by no one. Yet, as of FY 2025-26, close to 490 of India’s largest industrial facilities must measure, report, and trade it like any other asset. This is not a climate story. It is a story about market design, how a government manufactures something from nothing and makes it valuable.

1. Property Rights From Nothing
The basic problem with carbon is that no one owns it, so no one has an incentive to reduce it. Economists call this a negative externality, which is a cost imposed on society that the polluter does not pay. Economist Ronald Coase first articulated this solution, which is deceptively simple. Give a property right, and the market will do the rest. You cannot trade something nobody owns. But once the property rights are established, buyers and sellers emerge, a price forms, and the resource goes to whoever values it the most. This is precisely what India’s Carbon Credit Trading Scheme (CCTS) does. Emission intensity targets are notified in tonnes of CO₂ equivalent per unit of output, rather than as an absolute cap on total emissions. Facilities that emit less carbon per unit of output than their targets receive Carbon Credit Certificates (CCCs). They have to buy them if they go over their target. The certificate, a license to have already polluted less, is the new property right. Intensity-based design matters. This is suitable for a developing economy where absolute caps might restrict industrial growth, while total emissions might still rise as production increases; however, emission intensity per unit of output must fall. Europe’s EU ETS caps total tonnes. India caps efficiency. Both create scarcity, but both do so in completely different ways.

2. Who Decides How Much Carbon Exists
In the natural commodities market, scarcity is physical. Scarcity is institutional in the carbon market. Someone in the government decided how tight it is. The CCTS is governed by a multi-layered framework comprising the Ministry of Environment, Forest and Climate Change (MoEFCC), which announces the national climate strategy and targets, the Bureau of Energy Efficiency (BEE), as the scheme administrator and certificate issuer, the Grid Controller of India, managing the carbon registry, and the Central Electricity Regulatory Commission (CERC), which regulates trading and the market. The National Steering Committee for the Indian Carbon Market (NSCICM), co-chaired by the Ministry of Power and MoEFCC, oversees the entire compliance mechanism. Compliance obligations came into force in April 2025 for approximately 490 entities across seven sectors – aluminium, cement, chlor-alkali, pulp and paper, petroleum refining, petrochemicals, and textiles, with targets notified in two phases. Scarcity tightens on a published schedule rather than organically, with intensity reduction requirements stepping up year on year through to 2030. The ministry architecture is intentionally layered. The amount of carbon that exists as a tradeable asset in a given year is jointly determined by three ministries. The market’s tightness is a policy variable, not a natural one.

3. Does the Price Mean Anything
A price is only meaningful if it is a reflection of real supply and real demand. No easy ways out. In March 2026, CERC notified the regulations governing how CCCs will actually be bought and sold on power exchanges, which completed the final piece of the puzzle. The Ministry of Power publicly committed to launching full CCC trading by mid-2026. There is no over-the-counter market at first, which constrains liquidity but also constrains the sort of speculative volatility that affected early-stage carbon markets in Europe. Credits can be banked indefinitely; an over-performing facility today can save its certificate for tighter years ahead, but cannot borrow against it. The scheme is not linked to any international carbon market, a sensible design that ensures India’s price discovery is domestic and immune to external shocks.
The Deeper Point
India has not just built an environmental policy. It is an experiment in institutional economics, demonstrating that markets are not discovered but constructed. Carbon had no owner, and thus no price. CCTS gave it both. Whether the price that emerges is high enough to change industrial behavior at scale is the question the next few compliance cycles will answer.

References

https://beeindia.gov.in/show_content.php?lang=1&level=1&ls_id=189&lid=294
https://www.ey.com/en_in/insights/climate-change-sustainability-services/how-cctc-is-accelerating-india-inc-s-race-to-decarbonize
https://carbonmarketnetwork.com/blog/indias-carbon-credit-trading-scheme-ccts-explained/
https://icapcarbonaction.com/en/news/compliance-obligations-under-indias-carbon-credit-trading-scheme-enter-force-seven-sectors