EY helps clients create long-term value for all stakeholders. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate.
At EY, our purpose is building a better working world. The insights and services we provide help to create long-term value for clients, people and society, and to build trust in the capital markets.
In this episode of the EY India Insights podcast, Kapil Bansal, Partner, Energy Transition and Decarbonization, EY-Parthenon India, discusses India’s Carbon Credit Trading Scheme (CCTS), launched under the Energy Conservation Act 2022. This innovative scheme enables companies to trade carbon certificates based on verified emission reductions, allowing those that outperform emission benchmarks to generate and monetize carbon credits, while underperformers must purchase them. Kapil highlights the ways in which CCTS focuses on carbon reduction through renewable energy adoption and productivity improvements, accelerating India’s race to decarbonize. As sustainability becomes a strategic imperative, Indian companies should leverage CCTS to meet decarbonization targets and align with ESG frameworks.
Key takeaways
CCTS will transform carbon performance into economic value, allowing companies to monetize carbon credits, leading to improved market valuations.
The scheme enables trading of carbon credits on government-operated exchanges through productivity improvements and renewable energy adoption.
Companies should digitalize operational data into emissions data for transparency, facilitating effective tracking of incentives for greening operations.
Carbon stocks need proper pricing through dedicated institutions such as exchanges, aggregators, verifiers, certifiers and market makers.
CCTS should avoid double counting with export-oriented markets under CBAM or ETS regulations to align better with global standards.
Implementing a net-zero strategy is essential for companies to reduce their emission impacts, boost ESG credibility and enhance brand positioning.
Every stakeholder has a role to play (in the implementation of CCTS). The government will provide the right policies, regulators will ensure that actions are executed in a rightful manner, companies will make decisions based on carbon considerations, and finally, the market will drive towards environmental consciousness.
Kapil Bansal
Partner, Energy Transition and Decarbonization, EY-Parthenon India
For your convenience, a full text transcript of this podcast is available on the link below:
Pallavi
Welcome to another episode of the EY India Insights podcast, part of our Energy Transition Dialogues series. I’m your host, Pallavi.
In today’s episode, we are exploring how India Inc. is accelerating its race to decarbonize through initiatives like the Carbon Credit Trading Scheme or CCTS. With sustainability becoming a strategic imperative, Indian companies are looking for innovative ways to meet decarbonization targets, align with ESG frameworks and leverage carbon markets for growth.
Joining me today is Kapil Bansal, Partner, Energy Transition and Decarbonization, EY-Parthenon India, who leads the energy transition and decarbonization practice. Kapil brings deep insights into how carbon markets and corporate strategies are shaping India’s clean energy future. Thank you, Kapil, for joining us today.
Kapil Bansal
Thank you for having me over here.
Pallavi
To begin with, Kapil, could you explain what the Carbon Credit Trading Scheme is, and why it is significant for India Inc. and how it differs from previous mechanisms like the PAT scheme?
Kapil Bansal
If you look globally, a lot of the countries have adopted emission trading scheme. On those lines, the Carbon Credit Trading Scheme, CCTS, is a similar mechanism that India is launching under the Indian carbon market to create tradable carbon certificates towards the verified greenhouse gas emission reduction.
Before the CCTS scheme has been launched, three things happened in the compliance market. Number one, India (SEBI) had made it mandatory for top 1,000 companies to have BRSR reporting, which is a lot of information on emissions being captured. The second thing that India has also done (is that) during COP26, our honorable Prime Minister mentioned about India becoming net-zero and outlined certain Panchamrit initiatives, because of which it has become imperative for India to focus on reducing carbon which is directly linked to emissions. And to do that, the top sectors that are releasing emissions have to incorporate in their strategy certain emission reduction mechanisms and removals.
This scheme has been notified under the Energy Conservation Act of 2022. And from a regulatory standpoint of view, the scheme would be administered by Bureau of Energy Efficiency, which will do the actual measurement, reporting and verification, which we call MRV, of how the emissions are changing, what is the benchmark. And then based upon that issuance of carbon certificates would be done and there would be a trading framework through which there would be complete oversight and the price discovery of the carbon markets would be done.
From an industry standpoint, a CCTS will convert the carbon performance into economic value. Companies who are outperforming their emission reduction targets from the emission intensity benchmark can generate carbon credits and they can monetize them. Whereas those who are falling short, in terms of their operational improvements, have to procure these carbon credits, which would then become a kind of a cost revenue item for those who have to purchase, and for those who sell, it becomes a revenue element.
That is the basic, fundamental background. And the Carbon Credit Trading Scheme, CCTS, that has been currently conceptualized as we speak on 13th, four more industries updated benchmark and their emission intensities has been launched by Bureau of Energy Efficiency. Now, this scheme is very distinct from earlier PAT (Perform, Achieve, Trade) scheme, which was more focused on reducing the specific energy consumption and rewarding the energy savings.
Whereas CCTS is an explicit carbon focused emissions reducing (scheme), improving your emission intensity through productivity improvements, adopting renewable energy, etc. Thus, from the data from the benchmark, it becomes a tradable commodity in a particular exchange, which can be done by any government-based organization who is running the exchanges.
Pallavi
Thank you, Kapil. How can Indian companies benefit from participating in carbon credit rating? And what challenges might they face in meeting decarbonization targets?
Kapil Bansal
That's a beautiful question from an industry standpoint for any organization. There are two specific impacts, one on the financial, which I highlighted in the previous answer. And then there are strategic also. When you look from a financial standpoint of view, the firms who have done initial investment in efficiency improvement, either productivity, manpower, operational, etc., looked into renewable fuel switching or looking into carbon neutral alternative fuels are also looking to the ways they can look and process optimization can generate surplus carbon credits and potentially sell it in the future market, which will improve their bottom line, top line. And then this can be further invested into a cycle of decarbonization as the technology matures, so they can further continuously benefit out of it.
Whereas carbon credits is a mechanism towards your overall compliance fulfillment. So from a strategic standpoint, it becomes an important element for every company to adopt their net-zero strategy towards looking at how they are reducing their emission impacts.
And third, these help in terms of the overall ESG credibility, that is environmental, social and governance credibility, and help build confidence with their stakeholders, investors and improve their overall brand positioning.
However, the companies also face a lot of challenges. Again, on three fronts. One is technical, another is regulatory, and the third is commercial front.
On the technical front, a lot of the companies still don't have the wherewithal to understand how the emission should be measured, what data systems they should do it with, how that can be verified. Most of the time it is garbage in, garbage out. Similar happens in the data side of the things. If there is no proper system, then it becomes difficult to verify. That's more on the technical front.
From a regulatory standpoint of view, how do they benchmark themselves becomes a challenge? What is the threshold at the company level? What kind of future risks are they exposed to beyond their regular day to day job? And then they have to also start looking into carbon perspective, not just domestically, internationally also, as the baselines are evolving and it is dynamic towards compliance. Their top line and bottom line impact also comes through capital intensive decarbonization technologies that are there in electrification and carbon capture, etc. This takes a long payback period for them to capitalize and prove it through the financial side. Hence, I would summarize saying companies can monetize through better performance, gain compliances with their regulators, investors, stakeholders, and strengthen their credibility on an overall basis, as well as brand reputation. And carbon trading through CCTS allows them to focus more on decarbonization strategies and then improve their environmental conscious focus.
Pallavi
Thank you, Kapil. Now pivoting towards the regulatory aspect, how ready is India's market and regulatory infrastructure for carbon trading. And how does this connect to broader ESG sustainability and investor expectations?
Kapil Bansal
When you look at this whole CCTS, it started with a consultation paper two or two-and-a-half years back. I remember it was in June 2023 it was launched that carbon/emission in the form of greenhouse gas house emission intensities would be assessed. From that journey till now, a lot of communication, interactions and work has been done on the regulatory side by the government: the consultation paper, releasing the notification on the framework, talking about what could be the procedures of offsetting by creating meta registries and national registries. And obviously, that was from concept to building the overall transparency in the system. And as we speak now, a lot has been put on the public domain. There has been significant shift from intent to implementation as we see from an overall perspective.
However, when we see from the two elements of market readiness and client readiness or company readiness, there are certain challenges and things are evolving.
On market readiness, there has been ambiguity towards how the market, carbon markets, liquidity would be there. How would price discovery happen? Where is the overall confidence on what has been adopted and what has been showcased? There should not be any greenhushing and greenwashing so that there is complete transparency and the volume speaks up like the way we see stock market volumes or any stock. Similarly, carbon stocks should also become an important element and a proper price discovery should happen by having build-up of an implementation institution, agencies towards building exchanges, doing the aggregators, verifiers, certifying agencies, market makers in the overall mature system. The way it is there in the European Union, in the ETS system (emission trading system). And then when it comes from a client perspective, their readiness to build their technologies, to reporting, to capital availability to execute these decarbonization measures, are some of the challenges.
While some of the deep pocketed companies have already started, who have good capitalization. And they are not just doing from the perspective that since this is coming from the starting compliance market has shown a greater significance towards making it mandate. It is also look from an investor standpoint to ensure that not only the financial data is reported but the operational data is also reported continuously towards robust compliance, transparency and bringing credible transition towards a low carbon side of the world and getting a proper access to the capital. And showcasing that they are ready for the overall credit rating, lending terms and valuations from the overall scheme’s readiness perspective.
And finally from the service providers who provide the credit rating, ESG agencies who provide the ratings, etc., they should also become an integral part of this overall scoring mechanisms in terms of their say in the offset mechanism. And that should not be double accounting between nations.
If CCTS is India oriented, there are other export oriented markets where there are CBAM (Carbon Border Adjustment Mechanism) regulations or ETS regulation, it should not be double accounted and there should be a proper accounting mechanisms through which a harmonized global standards and the international markets are synchronized together. That is my overall view on the readiness and that is what we have tried to cover in our thought leadership as well.
Pallavi
Thank you, Kapil. Lastly looking ahead, what role will innovation, technology and capital markets play in accelerating decarbonization? And how should companies prepare for India’s carbon market by 2030?
Kapil Bansal
There are two parts to how things may happen over the next three to four years. And what should be the future from 2030 onwards? I think those are the two points that you asked. What I can say is what companies should do is they should start automating and digitalizing their operational data into their emission data so that there is complete transparency.
There should be a proper carbon strategy that should be built in terms of their emission reductions, in terms of its impact on their profitability, doing their automation of double materiality accounting and assessment. A lot of things have become a commodity and a lot of startups have AI solutions. EY also has (solutions). Companies should start looking into those compliance fulfillment, which is mandatory. There is no going back on that.
Start looking towards building. This would be in my thought leadership also — the cost of decarbonization technologies are rapidly decreasing, as you have seen in solar, wind, battery storages, carbon capture and hydrogen technologies, and electrification. And as we see in other markets recently in EU-ETS, there has been a 17% increase in the carbon price. The carbon price will completely increase. Companies should start looking into their projects with a lens of internal carbon pricing. And as CCTS has come, the actual price point would be added into their overall capital allocation. And finally, there should be a complete tracking of what incentives or capital they are allocating towards the greening of their operations, which would then mean that they do not need to offset it or buy carbon credits through the CDM mechanism (Clean Development Mechanism).
But, in fact, they should be below the benchmark so that they can monetize their carbon towards their proper planning. And I can tell you those companies were better prepared for this carbon credit and the reduction through decarbonization would have a better valuation in the market through the embedded carbon planning and the board oversight, in comparison to their peers and helping them to be the early movers and shaping the overall benefit.
Those are some of the imperatives that I think are here and now. Whereas things on future-2030 that would shape the complete, success and the maturity of Indian carbon markets are various elements, availability to capital would become more easy and frequent and accessible, better cost of capital will happen. The technologies will rapidly mature, and India would start doing a lot of investment in the R&D space, patent and doesn't have to depend on external countries. But we are already excellent in manufacturing. We just need to improve upon our R&D innovations and technology adoptions, which can bring faster localization, ownership and benefits in the overall GDP. Instead of depending upon outside technologies and what recently happened in terms of technologies not getting available for critical materials, refining, rare earth refining, magnets, semiconductors. We need to look into building our own technology base. We have the best engineering capabilities. And this will help us in terms of India becoming a superpower as we see.
The second element that I was talking about is from the capital availability. As carbon market stabilizes, it becomes a tradable financial lever, which wherever the money is, it could get accumulated over, it can go into the development of infrastructure development, like building up hydrogen pipelines or carbon capture pipelines, which is what a lot of the EU nations, China, New Zealand is doing. And helping in terms of execution of building collaborative ecosystems, helping in project financing by private-public partnership, and the overall carbon credit mechanism making it more bankable.
And that would be definite working from investors to look more on the project from an impact standpoint of impact from environmental, social and governance and the CCTS would provide a great benchmark for it. And finally, the overall governance would become more stringent in terms of how we are reporting in the overall context of our operations and its impact to the environment, the social, the way we structure our organization within the company or startups or any organization who's looking to build up their assets.
And then in terms of this overall integration, every stakeholder would have a role to play. Government would provide the right policies and harmonization of incentives and subsidies. There would be role play by the regulators to ensure that the things are being executed in rightful manner. Companies will take decisions based upon the carbon, and then finally, the market makers or the market would behave in the manner which will drive towards environmental conscious, carbon neutral, working with ensuring energy security and the “Atmanirbharta” that we are looking at. That's what I would say is an important factor because of which CCTS is a very good scheme that has been launched and our whitepaper talks about those 8 to 9 industries, which will be the stalwarts towards India being self-reliant as well the sustainably focused in their operational approach.
Pallavi
Thank you. Kapil. Now, that brings us to the end of this episode. Thank you so much for joining us today.
Kapil Bansal
Thank you Pallavi
Pallavi
As India accelerates its clean energy journey, green finance and carbon market participation will remain the cornerstones of our collective success. Thank you to all our listeners for tuning in. Don’t forget to follow or subscribe to the EY India Insights podcast.
Until next time, this is Pallavi signing off.
