India is preparing to launch its first-ever carbon market, a move that could significantly reshape the country’s approach to reducing greenhouse gas emissions. The Indian Carbon Market (ICM), set to begin compliance trading in 2025-26, is being touted as a key tool to help the country achieve its net-zero emissions target by 2070. However, weak regulations and inadequate oversight have raised serious concerns about fraud, manipulation, and the exploitation of vulnerable communities—especially farmers.
The Carbon Credit Trading Scheme (CCTS), first notified in June 2023, lays the groundwork for the market. It will begin as an intensity-based baseline-and-credit system, meaning industries will be given emissions reduction targets based on their production levels rather than an absolute cap. Companies that beat their targets will earn Carbon Credit Certificates (CCCs), which they can sell to those failing to meet their targets.
The first phase will cover nine industrial sectors—iron and steel, cement, aluminum, petrochemicals, refining, textiles, pulp and paper, fertilizer, and ‘chlor-alkali’—with the power sector likely to be included later. The Bureau of Energy Efficiency (BEE) will regulate the market, while trading is expected to take place on the Indian Energy Exchange (IEX) and similar platforms.
However, critics warn that without stricter regulations and enforcement mechanisms, the market could fall prey to manipulation, data fraud, and exploitation—with farmers bearing the brunt of the consequences.
According to a 2023 Centre for Science and Environment (CSE) report on voluntary markets, “the market only seems to work in the interest of the project developers and…the paraphernalia of consultants and auditors.” Most of the money is “eaten up by middlemen” with “little or nothing trickling down” to people on the ground.
Dark Side of India’s Carbon Market
Globally, fraud in carbon markets has been a recurring problem. The EU ETS suffered a €5 billion VAT fraud scandal in 2008-09, while China’s carbon market has faced data manipulation issues. In India, experts fear that the lack of regulatory clarity and weak monitoring mechanisms will open the floodgates for similar abuses.
The biggest concerns include:
Over-crediting and double-counting: India has multiple credit mechanisms (RECs for renewable energy, ESCerts for efficiency, and now CCCs). Without clear regulations, the same emission reduction could be credited multiple times, allowing industries to manipulate numbers without actual decarbonization.
False reporting and lack of verification: The absence of a stringent monitoring, reporting, and verification (MRV) system leaves room for industries to inflate emissions baselines to generate more tradable credits. As seen in China’s ETS, falsified data could distort market integrity and render the entire system ineffective.
Middlemen and corporate profiteering: The voluntary carbon credit system has already been plagued by issues where project developers and intermediaries capture the majority of carbon revenue, while the actual implementers—farmers—receive little to no compensation.
Sunita Narain, director, CSE told The Sunday Guardian, “When we showed our research and ‘Discredited’ report to the government they were caught unawares. They did not even have one paper or data logged about any carbon trading. They did show us one lose paper with something scribbled on it with a pen.”
Farmers at the Losing End
One of the biggest controversies surrounding carbon markets is whether they truly benefit small-scale stakeholders, such as farmers. India has been a global leader in voluntary carbon offset projects, generating nearly 20% of all credits issued under Verra and Gold Standard, two of the world’s largest carbon registries.
However, CSE and Down to Earth (DTE) investigations found that many farmers never see the money promised by project developers. One case in Haryana involved farmers shifting to low-methane rice cultivation techniques in hopes of earning carbon credits—but three years later, they had received no payments.
“The market works for the developers, consultants, and intermediaries—but not for the people on the ground,” said a farmer quoted in the Eco-Business/Thomson Reuters investigation. “We are being promised payments that never come.”
CSE’s 2023 ‘Discredited’ report went further, stating that in many voluntary projects, up to 80% of revenue is captured by intermediaries—leaving the original carbon reducers with almost nothing.
“This is legalized fraud,” said Sunita Narain, Director General of CSE. “The carbon market is being positioned as a solution for emissions reduction, but without regulation, it is becoming a tool for big corporations and consultants to extract wealth from farmers and rural communities.”
Government Inaction
Despite these glaring issues, India’s carbon market framework lacks clear legal mechanisms to ensure fair revenue-sharing or protection for vulnerable communities. The BEE has yet to outline penalties for companies or intermediaries found to be exploiting participants, nor has it provided clarity on who will regulate verification bodies to ensure transparency.
Without robust governance, India risks creating a market where the powerful profit while the marginalized suffer—mirroring the failures of past global carbon markets.
Calls for Regulatory Intervention
Environmental groups, including CSE, Climate Action Network, and independent climate economists, are urging the government to tighten regulations before the market officially launches. Their recommendations include:
- Mandatory revenue-sharing models for carbon credit projects involving farmers and indigenous communities.
- Stricter penalties for data fraud and over-crediting, including financial fines and bans for repeat offenders.
- Transparent tracking of carbon credit revenues to ensure that payments reach the intended beneficiaries.
- An independent watchdog agency separate from BEE to oversee carbon trading activities and prevent regulatory capture by corporate interests.
“The government must step in now,” said Yadav. “If India’s carbon market is to have any credibility, it must prioritize real emissions reductions, strict oversight, and justice for those who actually implement climate solutions.”
CBAM and India’s Carbon Market
The Carbon Border Adjustment Mechanism (CBAM), introduced by the EU, acts as a carbon tariff on imports from countries with weaker carbon pricing. It directly affects Indian industries like steel, aluminum, cement, fertilizers, and petrochemicals, increasing export costs to the EU.
Key Impacts
- CBAM raises costs for Indian exporters by enforcing carbon parity with EU industries.
- India’s Carbon Credit Trading Scheme (CCTS) may help but does not fully align with EU ETS due to its intensity-based approach.
- Carbon Credit Certificates (CCCs) may not be recognized under CBAM unless India strengthens its carbon pricing framework.
