India Advances Carbon Market with Offset Mechanism and New Methodologies

Taking a significant step forward, the Government of India introduced amendments to the Carbon Credit Trading Scheme in December 2023, incorporating the Offset Mechanism.

India has been making steady progress towards its commitment to reducing emission intensity as part of its larger climate action strategy. In line with this objective, the Government of India has already implemented the Carbon Credit Trading Scheme, 2023, which was notified in June 2023. This landmark initiative laid the foundation for the Indian Carbon Market (ICM) by establishing an institutional framework, including the formation of the National Steering Committee for Indian Carbon Market (NSCICM).

Strengthening India’s Carbon Market with the Offset Mechanism

Taking a significant step forward, the Government of India introduced amendments to the Carbon Credit Trading Scheme in December 2023, incorporating the Offset Mechanism. This new feature allows participation from non-obligated entities through voluntary climate mitigation projects, thus broadening the scope of climate action beyond industries mandated under compliance mechanisms.

The Offset Mechanism provides a structured framework for businesses, industries, and organizations to actively engage in projects that reduce, remove, or avoid greenhouse gas (GHG) emissions. By offering carbon credits for verified emission reductions, this initiative incentivizes a range of voluntary climate actions and extends the benefits of carbon trading to sectors previously not covered under compliance mechanisms.

Approval of Detailed Procedures and Eight Offset Methodologies

Further strengthening the carbon market framework, the Government of India has now approved the Detailed Procedure for the Offset Mechanism along with eight different methodologies under the Offset Mechanism. This move represents a major milestone in operationalizing the Indian Carbon Market, ensuring a clear, standardized, and transparent process for voluntary carbon credit generation.

The eight approved methodologies cover a wide range of sectors, promoting sustainable development while helping India achieve its climate targets. These methodologies include:

1. Renewable Energy Projects – Includes solar, wind, hydro (including pumped storage), and biomass-based energy generation to replace fossil fuel-based power.

2. Green Hydrogen Production – Encourages the development of hydrogen produced using renewable energy, reducing dependency on carbon-intensive hydrogen production methods.

3. Industrial Energy Efficiency – Focuses on process optimization and energy conservation measures within industries to minimize energy wastage and emissions.

4. Waste Heat Recovery – Aims to capture and utilize heat from industrial processes that would otherwise be lost, improving energy efficiency.

5. Landfill Methane Recovery – Supports projects that capture methane emissions from landfills and convert them into useful energy, preventing potent GHG emissions.

6. Sustainable Agriculture Practices – Encourages the adoption of techniques that reduce emissions from agricultural activities, including efficient fertilizer use and soil carbon sequestration.

7. Mangrove Afforestation & Reforestation – Focuses on restoring and expanding mangrove forests, which act as crucial carbon sinks and provide climate resilience benefits.

8. Sustainable Forestry and Land Use Management – Includes afforestation, reforestation, and conservation practices that enhance carbon sequestration and biodiversity protection.

Significance of the Offset Mechanism in India's Climate Action

The introduction of the Offset Mechanism under the Indian Carbon Market framework provides multiple benefits:

• Encouraging Voluntary Climate Action – The mechanism allows organizations outside of regulatory mandates to actively participate in emission reduction projects and contribute to India’s climate goals.

• Boosting Investment in Green Technologies – By generating carbon credits, companies and industries have financial incentives to invest in renewable energy, energy efficiency, and other sustainable practices.

• Enhancing Market Transparency and Credibility – The approval of detailed procedures ensures that carbon credit generation adheres to stringent verification and validation standards, making India’s carbon market robust and credible.

• Diversifying Climate Mitigation Efforts – The Offset Mechanism brings new sectors into the carbon market, allowing for more comprehensive emission reduction strategies.

The Road Ahead

The approval of the Detailed Procedure for the Offset Mechanism and the eight methodologies is a crucial step in strengthening the Indian Carbon Market. This initiative aligns with India's commitments under the Paris Agreement and its ambitious goal of achieving net-zero emissions by 2070.

Moving forward, stakeholders—including industries, businesses, policymakers, and environmental organizations—must collaborate to maximize the potential of the Offset Mechanism. By leveraging this framework, India can scale up its carbon market, drive sustainable economic growth, and lead the way in global climate action.

With these advancements, the Indian Carbon Market is poised to become a pivotal tool in accelerating climate mitigation, attracting green investments, and reinforcing India’s leadership in sustainable development.