Review Article

Carbon Trading Mechanisms in India: A Review of Current Policies and Future Prospects

Abstract

India’s carbon credit and trading framework has evolved through the integration of national climate policies, market-based mechanisms and agricultural sustainability initiatives. The Renewable Energy Certificate (REC) mechanism and the Perform, Achieve and Trade (PAT) scheme contributed to renewable energy expansion and industrial energy-efficiency improvements, while the Energy Conservation (Amendment) Act, 2022 established the foundation for the Carbon Credit Trading Scheme (CCTS). India’s installed solar capacity exceeded 63,000 MW by 2023, reflecting notable progress toward low-carbon development and industrial decarbonisation. Despite these achievements, agricultural participation in carbon markets remains limited due to small landholdings, inadequate awareness, high transaction costs and weak institutional access. Conservation agriculture, zero tillage and agroforestry demonstrate substantial potential for carbon sequestration, greenhouse gas mitigation and enhancement of farmer income. Agroforestry systems reported sequestration rates ranging from 0.25 to 23 Mg C ha−1 yr−1, while conservation agriculture practices showed potential carbon credit earnings of USD 16–30 per hectare. Institutions such as the Indian Council of Agricultural Research (ICAR), Krishi Vigyan Kendras (KVKs) and agricultural universities are increasingly promoting climate-smart agriculture, organic farming and carbon farming through research, extension and farmer training programs. The review highlights the quantitative gap between industrial decarbonisation and agrarian sustainability in India. While industries benefit from structured compliance mechanisms and policy incentives, agricultural systems remain inadequately integrated into formal carbon markets. Carbon credit mechanisms therefore offer significant opportunities to bridge this gap by incentivizing sustainable agricultural practices and strengthening rural participation in India’s green transition. The study concludes that inclusive policies, institutional coordination and farmer-centric market frameworks are essential for equitable low-carbon growth.