The declaration of Greenhouse Gas Emission Intensity (GEI) targets under the Carbon Credit Trading Scheme (CCTS) ushered progressive transition in the operationalisation of the scheme. However, a cursory glance at major global carbon market frameworks such as the European Union Emissions Trading System (EU ETS), the UK ETS, and South Korea’s ETS reveals an increasing leaning towards absolute emission reduction trajectories. In the face of this, the strategic choice for emission intensity targets (GHG per unit of GDP or output) under India’s CCTS calls for delving deeper into the policy compulsions.
Why did India choose the intensity-based target, rather than absolute reduction, and what are the inherent limitations of setting targets based on emission intensities?
The decision represents a pragmatic and strategic choice shaped by India’s developmental status, institutional maturity, and market readiness. With per capita emissions at approximately 2.4 tCO₂e, less than one-third of the global average, India remains one of the lowest emitters on a per capita basis, despite being the third-largest in absolute terms.
Imposing rigid, absolute caps could inadvertently constrain the sectoral growth of key sectors such as infrastructure and manufacturing, and poverty reduction, which is critical for India’s development agenda. Emission intensity targets have the inherent potential to enable India to decouple emissions from economic growth over time, supporting a low-carbon trajectory without stalling development.
Equally important is the issue of administrative and institutional readiness for a nascent domestic compliance carbon market. Absolute caps demand a sophisticated Measurement, Reporting, and Verification (MRV) ecosystem capable of granular emissions accounting across thousands of industrial facilities.
Emission intensity targets provide a technically manageable entry point, allowing for compliance to be tracked through standardised benchmarks while the underlying infrastructure for absolute accounting matures.
From a market design perspective, a rigid cap-and-trade model without adequate safeguards could cause price volatility, non-compliance risks, and resistance from industries with limited abatement options. Intensity-based compliance, on the other hand, promotes gradual sectoral transformation by rewarding efficiency gains, encouraging technological upgrades, and ensuring broad participation.
The strategic policy choice for such a design mirrors the early stages of systems like South Korea’s and California’s, which began with flexible mechanisms. India’s design choice is also built on the groundwork, which includes sectoral benchmarks, MRV, and registries for future linkage with international markets.
In essence, India’s reliance on emission intensity targets under CCTS is not a retreat from climate ambition but a calculated and temporally staged approach. It reflects the realities of a growing economy balancing climate justice with competitiveness, administrative feasibility, and geopolitical engagement. However, for India to maintain its credibility and climate leadership, this approach must be seen as a transitional architecture. One that progressively evolves towards hybrid and ultimately absolute emission reduction commitments in line with global climate goals.
Complete reliance on intensity-based targets could not be an enduring solution. While India’s adoption of these targets aligns with its developmental priorities, this approach presents several structural and strategic barriers.
India’s projected annual GDP growth of 6-7% implies a proportional increase in industrial output. If carbon intensity reduces by 3% annually while real output grows by 7%, total emissions could still rise by ~4%. In energy-intensive sectors such as aluminium and cement, India’s current emission intensity levels remain significantly higher than global best-in-class standards (IEA, 2022). However, under the CCTS, companies are only required to meet domestically set benchmarks, not international ones. This means that firms can comply with relatively lenient standards, potentially locking in higher emissions and discouraging ambition or innovation needed to reach global competitiveness.
The EU’s Carbon Border Adjustment Mechanism (CBAM) is designed around absolute emission metrics. Its mismatch with India’s emission intensity targets could pose challenges for Indian exporters in sectors like steel, aluminium, and cement. The use of intensity metrics under the CCTS may serve as a pragmatic interim strategy for India’s low-carbon transition, but it falls short in delivering the certainty required for deep decarbonisation. Hence, it becomes imperative to take policy actions keeping in mind the country’s long-term decarbonisation goals.
To ensure long-term environmental integrity, market credibility, and global alignment, the scheme may consider the following approach to evolve in its design and ambition.
Transition to sectoral carbon budgets: While intensity-based targets offer flexibility for economic growth, they do not guarantee a decline in total emissions, especially in a rapidly expanding economy like India’s. A phased transition towards a hybrid model combining both intensity and absolute targets is essential.
Strengthening the MRV infrastructure: Robust MRV is foundational for the credibility of any carbon market. India should mandate third-party verification using globally accepted standards such as ISO 14064-3. Digital, tamper-proof MRV systems, ideally built on blockchain or secure ledger technology, can ensure real-time tracking of emissions and credit generation, while minimising fraud and boosting investor trust.
Improve market design and oversight: A well-functioning market requires predictability, liquidity, and trust. The CCTS should incorporate mechanisms like price floors and ceilings, rules for credit banking and borrowing, and vintage differentiation. A dedicated market oversight body should be established to enforce compliance, monitor credit quality, and protect against manipulation or speculation.
While India’s CCTS provides a solid foundation, its future effectiveness will depend on evolving towards absolute reductions, building robust MRV systems, aligning with international markets, and ensuring equity across sectors and regions.
(Shubhi is a climate finance expert; Gopal is an associate professor and Head of the Department, TERI School of Advanced Studies)