India Carbon Market Briefing

May 2026 — Issue #1

RSustain Carbon Desk  |  Published 27 May 2026  |  Monthly cadence  |  rsustain.org

01 Editor’s Note

This is the first issue of the India Carbon Market Briefing, a monthly publication from the RSustain Carbon Desk. The briefing exists because India’s carbon landscape is changing faster than most organisations can track. The Indian Carbon Credit Trading Scheme is moving from gazette notification to operational reality. The EU’s Carbon Border Adjustment Mechanism has entered its definitive period. Voluntary carbon markets are consolidating around new integrity standards. And domestic regulatory requirements — from BRSR Core disclosures to the proposed carbon exchange framework — are creating compliance timelines that demand attention now, not next quarter.

Each issue will cover the same ground in a consistent format: CCTS implementation progress, market data across compliance and voluntary instruments, CBAM developments, international negotiations, regulatory changes, and a rotating sector spotlight. The objective is to give sustainability professionals, compliance teams, and senior leadership a single document that captures the month’s essential developments without requiring them to monitor dozens of separate sources.

We have designed this briefing to be factual, precise, and actionable. Where data is uncertain or contested, we will say so. Where regulatory timelines are ambiguous, we will note the ambiguity rather than presenting speculation as certainty. India’s carbon market is too important — and moving too fast — for anything less than disciplined analysis.

We welcome feedback at carbon@rsustain.com.

02 CCTS Update

The Indian Carbon Credit Trading Scheme, notified under Section 14 of the Energy Conservation (Amendment) Act 2022, remains the most consequential climate policy instrument under development in India. As of May 2026, the scheme has advanced materially on several fronts, though the operational launch of compliance trading continues to be a work in progress.

Rules and Governance

The Bureau of Energy Efficiency (BEE), designated as the scheme’s administrator, has finalised the institutional architecture. The National Steering Committee for carbon markets, chaired by the Secretary of MoEFCC with the Secretary of MoPNG as co-chair, met twice in Q1 2026 to approve the operational framework for the compliance mechanism. The key governance decisions confirmed to date include:

• Obligated entities: The initial compliance cycle will cover designated consumers under the PAT (Perform, Achieve and Trade) scheme — approximately 1,100 industrial facilities across 13 sectors. These entities are already familiar with energy-efficiency trading through ESCerts, providing a natural institutional bridge to carbon credit obligations.
• Trajectory setting: BEE has issued draft GHG intensity benchmarks for six priority sectors (thermal power, iron and steel, cement, aluminium, refineries, and chlor-alkali). Final benchmarks, incorporating industry consultation feedback, are expected by August 2026.
• Carbon Credit Certificates (CCCs): Each CCC will represent one tonne of CO2 equivalent reduced or avoided. The certificate specification, including vintage, methodology, and verification requirements, has been drafted but not yet formally notified.

Registry Development

The Grid Controller of India (formerly POSOCO), designated as the registry administrator, has completed Phase 1 development of the Indian Carbon Market Registry. The registry will handle issuance, transfer, and retirement of CCCs for both compliance and offset markets. Phase 2, covering integration with the proposed carbon exchange platforms, is under development with an expected completion date of Q4 2026. The registry architecture draws on the existing REC registry infrastructure operated by POSOCO, adapted to handle the additional data fields required for carbon credit provenance and methodology tracking.

Methodology Finalisation

BEE has approved the framework for sectoral methodologies but the detailed methodologies — specifying measurement, reporting, and verification (MRV) requirements at the installation level — remain in various stages of completion. The thermal power sector methodology is the most advanced, having benefited from a decade of PAT cycle data. Methodologies for industrial process emissions (cement calcination, aluminium smelting) are in advanced draft stage. Forestry and land-use methodologies for the offset mechanism have not yet been published for consultation.

What to Expect in Q3/Q4 2026

03 Market Data Snapshot

Renewable Energy Certificates (RECs)

RECs remain the most liquid environmental commodity traded on Indian exchanges, and their pricing dynamics provide a useful proxy for the broader direction of India’s environmental markets. In May 2026 trading sessions:

The REC market continues to trade at the floor/forbearance price of Rs 1,000/MWh following the CERC’s July 2025 revision that unified the floor and forbearance bands. Volume has been steady but unremarkable, reflecting the limited number of obligated entities actively purchasing ahead of RPO compliance deadlines. The structural oversupply of RECs relative to demand persists, and until CCTS compliance obligations create additional demand for environmental certificates, pricing is unlikely to move materially above the administered floor.

EU ETS (EUA Futures)

EUA prices have firmed through May, supported by three factors: the accelerated pace of free allocation phase-out under the revised ETS Directive, stronger-than-expected industrial output data in Germany and Italy, and the Market Stability Reserve continuing to absorb surplus allowances. The EUR 68-74 range is material for Indian exporters because it sets the reference price for CBAM certificate purchases. Every euro increase in the EUA price translates directly into higher CBAM costs for Indian goods entering the EU.

Voluntary Carbon Markets (VCM)

The global voluntary carbon market remains in a period of recalibration following the integrity crises of 2023-24. Key developments in May 2026:

• ICVCM Core Carbon Principles (CCPs): The Integrity Council for the Voluntary Carbon Market has now assessed and labelled approximately 45% of the major methodology categories under its CCP framework. Programmes that have received CCP-eligible labels are commanding a price premium of 30-50% over unlabelled credits of similar vintage and type.
• Nature-based credits: REDD+ credits, which dominated VCM volumes in prior years, continue to trade at depressed prices (USD 3-6/tCO2e for older vintages) while newer issuances under enhanced methodologies (including jurisdictional REDD+ aligned with Article 6.2) are pricing at USD 10-18/tCO2e.
• Removal credits: Engineered carbon dioxide removal (DACCS, BiCRS) credits remain at a premium (USD 200-600/tCO2e), with limited volume but growing pre-purchase commitments from technology companies.
• India-origin credits: Indian VCM credits, primarily from cookstove, renewable energy, and waste management projects, are trading at USD 2-5/tCO2e for standard vintages. The discount relative to global averages reflects both the scale of Indian issuances and buyer uncertainty about additionality in older renewable energy methodologies.

India’s Carbon Tax Context

India does not have a formal carbon tax, but the implicit carbon price embedded in existing fiscal instruments provides important context. The coal cess, introduced in 2010 at Rs 50/tonne and raised progressively to Rs 400/tonne by 2016, was effectively subsumed into the GST Compensation Cess in 2017. At Rs 400 per tonne of coal (approximately 2.5 tCO2 per tonne of thermal coal), this translates to an implicit carbon price of approximately Rs 160/tCO2, or roughly USD 1.90/tCO2 at current exchange rates. This is an order of magnitude below the EU ETS price, which is precisely why CBAM creates such significant exposure for Indian exporters.

04 CBAM Watch

The Carbon Border Adjustment Mechanism entered its definitive period on 1 January 2026. The transitional reporting phase, which ran from October 2023 to December 2025, is over. EU importers of CBAM-covered goods (cement, iron and steel, aluminium, fertilisers, hydrogen, and electricity) must now purchase and surrender CBAM certificates corresponding to the embedded emissions of their imports.

First Quarterly Reports Under the Definitive Period

The first quarterly CBAM declarations under the definitive regime were due by 30 April 2026, covering Q1 2026 imports. Early indications from EU customs data suggest that the reporting burden has been manageable for large importers who invested in systems during the transitional phase, but small and medium importers — particularly those sourcing from multiple countries — have struggled with the requirement to obtain actual installation-level emission data from non-EU producers.

Where actual data is not available, EU importers must use default values published by the European Commission. These default values are based on the average emission intensity of the worst-performing 10% of installations in the EU for each product category, plus a mark-up. For Indian exporters, this is a critical point: failing to provide actual emission data to EU customers results in the default values being applied, which are almost always higher than the actual emissions of Indian installations. The cost penalty for data non-compliance is therefore significant and direct.

Impact on Indian Exporters

Indian industry associations, including CII and FICCI, have been actively engaging with the European Commission on implementation concerns. The key issues raised include:

• Verification infrastructure: India lacks a sufficient number of accredited verifiers with expertise in EU MRV methodologies. BEE and QCI are working on a mutual recognition framework, but no formal equivalence agreement is in place.
• Scope 2 methodology: The treatment of indirect emissions from electricity (particularly for aluminium and electric arc furnace steel) remains contentious. Indian producers using captive coal power face significantly higher embedded emissions than those procuring grid electricity, which in India carries a progressively lower emission factor as renewable capacity grows.
• Carbon price deduction: CBAM allows deduction of any carbon price effectively paid in the country of origin. India’s coal cess/GST Compensation Cess is being assessed for eligibility, but the European Commission has not yet confirmed whether it qualifies as an “effective carbon price” under the CBAM Regulation. This decision could be worth hundreds of millions of euros annually to Indian exporters.

EU Implementing Regulation Updates

The European Commission published a delegated act in March 2026 clarifying the methodology for calculating embedded emissions in complex goods (goods with multiple precursors). This is relevant for Indian steel exporters shipping finished products such as tubes, pipes, and structural sections, where the embedded emissions include both the crude steel production stage and the finishing/forming stage. The delegated act also clarified the treatment of waste gases used for electricity generation in integrated steel plants, a point that had been ambiguous during the transitional phase.

05 International Developments

Article 6 Negotiations

The operationalisation of Article 6 of the Paris Agreement continues to be the central negotiating track for international carbon markets. Following the Bonn intersessional (SB 62, April 2026), the state of play is as follows:

• Article 6.2 (bilateral agreements): Over 70 bilateral agreements have been signed globally under the cooperative approaches framework. India has signed Article 6.2 agreements with Japan, Switzerland, and Singapore, with negotiations reportedly advanced with South Korea and Germany. The key unresolved issue is the treatment of corresponding adjustments for credits generated from projects that also have domestic compliance value under CCTS — a “double-counting” risk that India’s negotiators are working to resolve.
• Article 6.4 (successor to CDM): The Article 6.4 Supervisory Body has approved baseline and monitoring methodologies for renewable energy and energy efficiency project types. Methodologies for carbon removal activities (including afforestation and soil carbon) remain under development. India, as the largest host country under the CDM, has a significant interest in ensuring that the transition from CDM to Article 6.4 credits is orderly and that existing project proponents have a clear pathway to re-registration.

Japan JCM Projects in India

The Joint Crediting Mechanism between Japan and India continues to generate credits from bilateral projects. As of May 2026, approximately 22 JCM projects in India have been registered, spanning solar power, energy efficiency in manufacturing, and waste heat recovery. Total credits issued to date are approximately 180,000 tCO2e. Japan’s Ministry of the Environment has signalled continued interest in expanding JCM partnerships in India, particularly for green hydrogen and ammonia co-firing projects that align with both countries’ industrial decarbonisation priorities.

COP31 Preview: Belem, Brazil

COP31 is scheduled for November 2026 in Belem, Brazil, at the gateway to the Amazon. The conference will be the first COP under the new cycle of nationally determined contributions (NDCs) due in 2025, and is expected to focus heavily on implementation and finance. For carbon markets, the key agenda items will include:

• Finalisation of the Article 6.4 mechanism’s methodology framework, particularly for removal activities
• Review of the first corresponding adjustment reports under Article 6.2
• Progress on the new collective quantified goal on climate finance (NCQG), which will influence the scale of market-based mechanisms available to developing countries
• Brazil’s proposal for a tropical forest credit mechanism, which could create a new category of sovereign-backed forest carbon credits

06 Regulatory Radar

07 Sector Spotlight: Indian Steel

India is the world’s second-largest steel producer, with crude steel output of approximately 145 million tonnes in FY 2025-26. The sector accounts for roughly 12% of India’s total CO2 emissions and is the single largest industrial source of greenhouse gases in the country. It is also India’s largest CBAM exposure sector, its most significant CCTS obligated sector, and the industry where the domestic and international carbon policy agendas converge most acutely.

The Carbon Profile

India’s steel sector emission intensity is shaped by its production mix:

• BF-BOF (blast furnace – basic oxygen furnace): Approximately 45% of production. Average emission intensity of 2.5-2.8 tCO2/tonne of crude steel, driven by high-ash domestic coking coal and relatively older furnace stock compared to Japan or the EU.
• DRI-EAF (direct reduced iron – electric arc furnace): Approximately 25% of production. India is the world’s largest DRI producer, but the majority of DRI is coal-based (using rotary kilns), with emission intensities of 2.0-2.5 tCO2/tonne. Gas-based DRI (Midrex/HYL process) is significantly lower at 1.2-1.5 tCO2/tonne.
• Scrap-based EAF and induction furnaces: Approximately 30% of production. Emission intensity of 0.6-1.2 tCO2/tonne depending on electricity source.

The weighted average emission intensity of Indian steel is approximately 2.0-2.2 tCO2/tonne, compared to a global average of approximately 1.85 tCO2/tonne and an EU average of approximately 1.4 tCO2/tonne. The gap is significant but not insurmountable.

Decarbonisation Initiatives

Indian steel producers are pursuing multiple decarbonisation pathways, driven by a combination of domestic policy pressure (CCTS obligations, National Steel Policy targets), export competitiveness (CBAM), and investor expectations (BRSR disclosures, ESG ratings):

• Green hydrogen DRI: This is the most watched pathway globally. JSW Steel has commissioned a pilot green hydrogen DRI facility in Bellary, Karnataka, using electrolyser-produced hydrogen from solar power to reduce iron ore. Tata Steel has announced a green hydrogen DRI project at its Jamshedpur complex, with commissioning expected in 2027. SAIL is exploring a hydrogen injection programme for its Rourkela blast furnace, starting with a 5-10% hydrogen blend in the tuyere injection stream.
• Scrap maximisation: India’s steel scrap availability is projected to grow from approximately 35 million tonnes in FY 2025-26 to over 60 million tonnes by FY 2030-31 as the vehicle and infrastructure stock ages. Increasing the scrap-to-steel ratio reduces the need for virgin iron reduction and significantly lowers emission intensity. The National Steel Scrap Policy is being implemented with BIS quality standards for processed scrap.
• CCUS: Tata Steel has piloted a carbon capture facility at Jamshedpur that captures approximately 5 tCO2/day from the blast furnace gas stream. Commercial-scale CCUS in Indian steel remains economically challenging at current carbon prices, but the technology readiness level is advancing.
• Renewable energy procurement: All major Indian steel producers have signed large-scale renewable energy procurement agreements, with JSW, Tata Steel, and SAIL collectively contracting over 5 GW of solar and wind capacity for captive consumption. This directly reduces Scope 2 emissions and, critically, the CBAM-relevant embedded emissions of EAF and finishing operations.

The Competitive Stakes

For Indian steel, the carbon transition is not an abstract ESG commitment — it is a trade competitiveness imperative. At current EUA prices, the CBAM cost differential between Indian BF-BOF steel and EU-benchmarked steel is approximately EUR 80-140 per tonne. For a sector operating on thin margins in export markets, this is enough to shift trade flows. Indian producers that can demonstrate lower embedded emissions through verified data and actual decarbonisation investments will retain EU market access; those that cannot will be priced out.

08 Tools & Resources

RSustain maintains a suite of free and subscription tools designed to help Indian organisations navigate carbon compliance and strategy. The following are directly relevant to the topics covered in this briefing: