Introduction: India’s Carbon Credit Programme and Its Ambiguities

In the Union Budget 2026-27, the Government of India allocated ₹20,000 crore over five years for a carbon credit programme primarily targeting Carbon Capture, Utilisation and Storage (CCUS) technologies. The initiative aims to decarbonise five key industrial sectors: power, steel, cement, refineries, and chemicals. However, public discourse and official communication have conflated this industrial CCUS scheme with agriculture-based carbon credit generation, causing uncertainty among stakeholders and complicating policy implementation.

This confusion undermines clarity on regulatory frameworks, funding allocation, and market mechanisms, posing risks to India’s climate mitigation commitments under the Paris Agreement (2015) and its nationally determined contributions (NDCs).

Scope and Objectives of the ₹20,000 Crore Carbon Credit Programme

The programme announced in Budget 2026-27 focuses on deploying CCUS technologies to capture industrial CO₂ emissions at source, utilising or securely storing them underground. The targeted sectors contribute approximately 40% of India’s total CO₂ emissions (MoEFCC, 2023), making them critical for emission reduction efforts.

• Budget allocation: ₹20,000 crore over five years dedicated to CCUS R&D, pilot projects, and deployment.
• Target sectors: power generation, steel manufacturing, cement production, petroleum refineries, and chemical industries.
• Goal: Support India’s commitment to reduce emission intensity by 45% by 2030 under the Paris Agreement.

Understanding Carbon Capture, Utilisation and Storage (CCUS)

CCUS encompasses technologies that capture CO₂ emissions from industrial processes or power plants before they enter the atmosphere. The captured carbon is either utilised in industrial applications or stored underground in geological formations.

• Capture: Technologies trap CO₂ at emission sources.
• Transport: CO₂ is moved via pipelines or other means to utilisation or storage sites.
• Utilisation: CO₂ is used in enhanced oil recovery, chemical production, or material synthesis.
• Storage: Injection into deep saline aquifers or depleted oil and gas reservoirs for permanent sequestration.

Legal and Institutional Framework Governing Carbon Credits in India

No dedicated legislation currently governs carbon credit trading in India. The framework relies on existing environmental laws and inter-ministerial coordination:

• Environment Protection Act, 1986 (Section 3): Empowers the Central Government to take measures to protect the environment.
• Energy Conservation Act, 2001 (Section 14): Mandates energy conservation measures, indirectly supporting emission reduction.
• The Air (Prevention and Control of Pollution) Act, 1981: Regulates air pollutants from industries.
• MoEFCC: Formulates policies related to environment and climate change.
• MNRE: Promotes renewable energy and sustainable technologies.
• NITI Aayog: Advises on carbon market development and climate policy.
• CPCB: Monitors industrial emissions.

Internationally, India adheres to the Paris Agreement (2015) under the UNFCCC, committing to reduce emission intensity by 45% from 2005 levels by 2030.

Economic Dimensions and Market Potential

India’s industrial sector emits roughly 40% of the country’s CO₂ (MoEFCC, 2023). The ₹20,000 crore budget aims to accelerate CCUS deployment in high-emission industries.

• Global voluntary carbon market size: $851 million in 2023, growing at 20% CAGR (Ecosystem Marketplace, 2024).
• India’s voluntary carbon market is nascent but projected to reach $10 billion by 2030 (NITI Aayog, 2023).
• CCUS technology cost: $50-$100 per ton of CO₂ captured (IEA, 2023), currently a barrier for widespread adoption.
• Agriculture-based carbon credit potential: estimated at 100 million tons CO₂ equivalent annually (ICRISAT, 2022), but distinct from industrial CCUS.

Comparative Analysis: India vs European Union Carbon Markets

Critical Gaps and Policy Challenges

India’s carbon credit framework suffers from:

• Lack of a unified, transparent regulatory mechanism differentiating CCUS projects from agriculture-based carbon credits.
• Confusion among stakeholders about eligibility, certification, and trading processes.
• Risk of double counting emissions reductions due to overlapping schemes.
• Insufficient clarity on fund allocation and monitoring mechanisms.
• Absence of standardized verification protocols, unlike mature markets such as the EU ETS.

Significance and Way Forward

• Establish a dedicated legislative framework for carbon credit trading to provide legal certainty and market confidence.
• Separate regulatory streams for industrial CCUS and agriculture-based carbon credits to avoid conflation and double counting.
• Develop standardized certification, monitoring, reporting, and verification (MRV) protocols aligned with international best practices.
• Enhance inter-ministerial coordination among MoEFCC, MNRE, NITI Aayog, and CPCB for coherent policy implementation.
• Promote public-private partnerships and incentivize CCUS technology adoption to reduce costs and scale deployment.

Practice Questions

Jharkhand & JPSC Relevance

• JPSC Paper: Paper 3 – Environment and Ecology, Industrial Pollution Control
• Jharkhand Angle: Jharkhand’s steel and cement industries are major CO₂ emitters; CCUS initiatives can impact local pollution and employment.
• Mains Pointer: Discuss state-specific industrial emissions, potential for CCUS adoption, and need for clear policy frameworks to harness carbon markets effectively.