compliance//3 min read
Carbon credits explained: markets, quality, and India's carbon market
A carbon credit represents one tonne of CO2 avoided or removed, but not all tonnes are equal. How voluntary and compliance markets work, what makes a credit credible, and how India's Carbon Credit Trading Scheme fits in.
In short
- A carbon credit represents one tonne of CO2 equivalent reduced or removed, issued and tracked by a registry.
- Compliance markets are created by law; voluntary markets serve companies acting on their own targets.
- Quality rests on additionality, permanence, conservative baselines, leakage controls and no double counting.
- India's Carbon Credit Trading Scheme combines emission-intensity targets for heavy industry with an offset mechanism.
A practical overview for product and engineering teams, not legal advice. Dates and thresholds in EU rules have changed more than once, so check the official European Commission pages before you rely on a detail.
A carbon credit is a certificate representing one tonne of carbon dioxide equivalent (tCO2e) that was kept out of the atmosphere or removed from it. Each credit has a serial number in a registry, and when a company uses it against its emissions, the credit is retired so it cannot be used again.
Two kinds of market
Compliance markets | Voluntary markets | |
|---|---|---|
Created by | Law or regulation | Companies' own climate commitments |
Who takes part | Regulated emitters | Any buyer |
Examples | EU ETS, India's CCTS compliance mechanism | Credits issued under standards such as Verra or Gold Standard |
What is traded | Allowances, and in some schemes offsets | Offset credits from projects |
Avoidance and removal
Avoidance credits come from projects that prevent emissions: renewable power replacing fossil power, efficient cookstoves, methane capture. Removal credits come from projects that take CO2 out of the air: reforestation, soil carbon, biochar, direct air capture. Buyers increasingly favour removals for long-term targets, because avoidance does not undo emissions already made.
What makes a credit credible
- Additionality: the reduction would not have happened without the money from credits.
- Permanence: the carbon stays out of the atmosphere; forest credits need buffers against fire and logging.
- Conservative baselines: the counterfactual is not inflated to issue more credits.
- Leakage: protecting one forest does not simply move logging to the next.
- No double counting: the same tonne is not claimed twice, by two buyers or by a buyer and a country.
- Independent verification: an accredited third party checks the monitoring data.
The Integrity Council for the Voluntary Carbon Market (ICVCM) assesses methodologies against its Core Carbon Principles and labels those that meet them, giving buyers a common quality bar.
Between countries: Article 6
Article 6 of the Paris Agreement lets countries transfer emission reductions to each other. When a country authorises a credit for use by another country or a company, it makes a corresponding adjustment to its own accounts, so the tonne is counted once. This matters for credits sold abroad from Indian projects.
India's Carbon Credit Trading Scheme
India notified its Carbon Credit Trading Scheme (CCTS) in 2023, under the amended Energy Conservation Act. It has two parts:
- A compliance mechanism: obligated entities in energy-intensive sectors receive greenhouse-gas emission-intensity targets. Those that beat their targets earn carbon credit certificates; those that miss them must buy certificates.
- An offset mechanism: projects outside the obligated sectors can earn certificates for verified reductions or removals under approved methodologies.
The Bureau of Energy Efficiency administers the scheme, with a national registry and trading on power exchanges. Intensity targets are being notified sector by sector, so check the current list if your company runs energy-intensive plants.
Credits and CBAM do not mix
A common question from exporters: can voluntary credits reduce what EU customers pay under the Carbon Border Adjustment Mechanism? No. CBAM allows a deduction only for a carbon price actually paid in the country of production. Cutting real emissions at the plant is what lowers a CBAM bill.
A credit is a promise about a tonne. Its value is in how well that promise can be checked.
If you are buying credits
- To do: Prefer credits with recognised quality labels and independent verification
- To do: Read the project documents: baseline, additionality and monitoring
- To do: Check the registry for issuance and retirement history
- To do: Know whether the credit carries a corresponding adjustment, if you need one
- To do: Use credits alongside, never instead of, cutting your own emissions
