Legal Framework for Carbon Trading in India

Author: Shadrack Chai Chivatsi, University of Nairobi

Edited By: Team LawFoyer


“Clean air and water and a viable climate are inalienable human rights and solving this crisis is not a question of politics. It is a moral obligation- if, admittedly, a daunting one.” – Quote by Leonardo DiCaprio, American actor and film producer.

The Earth is a planet that contains human beings, animals, and plants as fauna and flora respectively. For a very long time, these living organisms have been interrelated with water, air, soil, and other physical properties. This symbiotic relationship has enabled a harmonious ecosystem between them. Humans have been at the forefront of coming up with incentives and innovations, from agrarian to industrialization systems. All these human activities done for the betterment of economies have partly or wholly contributed to climate change by the emission of greenhouse gases, CO2 included. This Carbon IV oxide and other greenhouse gas levels in the atmosphere have been rising very alarmingly. Climate change is now a contemporary issue in the society today. The bitter pill to swallow is that we have very limited carbon technocrats globally to address and advocate this ongoing crisis. It’s even sad that most of the human population is still ignorant about climate change despite nature constantly communicating that we are in trouble and need us to restore it. Communication has been through prolonged droughts, global warming, bushfires, floods, and many other effects. Carbon trading is among other mechanisms to leverage and decarbonize the planet as a path towards restoring the net zero emission target. This policy enabled the EU emission transmission system (ETS) as a market for carbon credits and emissions. Carbon credits are the acceptable volume of carbon dioxide that can be released by a certified climate action project. The conceptualization of carbon credit and offsets is taking momentum as the world faces the ever-growing threat of climate change.[i] India is also no exception to this, and a robust legal framework is emerging to ensure that the nation is truly net zero emissions.

Keywords: carbon trading, carbon offsets, carbon credits, emissions, climate change, global warming, Kyoto Protocol, Paris Agreement, decarbonization, European Union (EU), emission transmission system (ETS), Greenhouse Gases (GHG).

Meaning, Definition & Explanation

Carbon trading is the buying and selling of carbon IV oxide emissions by producing it or by exchanging it from one’s limit fixed according to the Kyoto Protocol.[ii] Carbon credits and emissions trading can put a value on forests’ standing that preserves them as carbon sinks, a refuge for animals and plants, and a source of sustainable jobs for Indigenous peoples and others. Imagine a resident in India who often more than not plants trees and preserves trees to prevent soil erosion, acting as windbreakers or to some even a source of food can now use forests as an economic capital thanks to climate change restoration. This will in turn encourage sustainable trading practices and invest in green initiatives in India. Emerging economies are beginning to monetize their forest cover and GHG emission reductions through carbon credits and emissions trading. Carbon credits and carbon taxes offer opportunities to control GHG emissions.[iii] Consequentially, in such a market, a country which is carrying out initiatives that clearly reduce emissions may earn carbon credits and trade in the open market these emissions reductions. This is also known as an Emissions Trading System (ETS).

Types of carbon markets

These markets can either be mandatory, where participating organizations are required by law to participate in the market and to meet certain carbon reduction targets, or voluntary, where companies, governments, and other organizations can offset their carbon emissions voluntarily—either to meet their own sustainability goals or to demonstrate their commitment to reducing their carbon footprint.[iv] This is a compliant carbon market, EU’s ETS — that is to say, companies of a certain size who emit exhaust gases must every year also not forget to buy large transfers themselves. The Gold Standard is a stop-gap standard to help facilitate trading of carbon in the voluntary carbon market (VCM). Carbon taxes or carbon pricing for the price of the carbon owed to the Government by Society in general.

Legal Provisions Invoked

“Energy Conservation Act, 2001.”

The ministry introduced a carbon trading scheme. It established a National Steering Committee to oversee the market and the Bureau of Energy Efficiency will be responsible for implementing the scheme including formulating rules, setting emission targets, issuing carbon credits, and developing guidelines for trading. The Central Electricity Regulatory Commission has been mandated as the authority regulator to ensure market integrity and safeguard stakeholders’ interests.

 Air (Prevention and Control of Pollution) Act, 1981

Pursuant to this legislation, the standards for emission have been set, these only include “Carbon Monoxide (CO) and not Carbon dioxide (CO2) or any other GHG emissions.”[v]

Electricity Amendment Act (2023)

It has made efforts to integrate climate action by promoting renewable energy.[vi] However, these laws are largely focused on improving regulation and sectoral efficiencies, and the discourse on climate action and emission reduction is largely ‘incidental and peripheral’[vii]

Constitution of India

According to Article 48A,[viii] “the State is responsible for protecting and improving the environment, as well as safeguarding forests and wildlife. The Indian government is legally obligated to put in significant effort to preserve and defend the environment, forests, and all their diversity.”[ix]

International laws and regulations which India has ratified.

  • Kyoto protocol

Article 17[x] is being used for carbon trading. Article 17 clearly states that “The Conference of the Parties shall define the relevant principles, modalities, rules, and guidelines, in particular for verification, reporting, and accountability for emissions trading. The Parties included in Annex B may participate in emissions trading to fulfil their commitments under Article 3. Any such trading shall be supplemental to domestic actions to meet quantified emission limitation and reduction commitments under that Article”.[xi]

In detail, Article 3[xii] states that “The Parties included in Annex I shall, individually or jointly, ensure that their aggregate anthropogenic carbon dioxide equivalent emissions of the greenhouse gases listed in Annex A do not exceed their assigned amounts, calculated according to their quantified emission limitation and reduction commitments inscribed in Annex B and under the provisions of this Article, to reduce their overall emissions of such gases by at least 5 percent below 1990 levels in the commitment period 2008 to 2012”. And each party included in Annex I shall, by 2005, have made demonstrable progress in achieving its commitments under this Protocol.[xiii] “Any emission reduction units, or any part of an assigned amount, which a Party acquires from another Party following the provisions of Article 6 or of Article 17 shall be added to the assigned amount for the acquiring Party. Any emission reduction units, or any part of an assigned amount, which a Party transfers to another Party per the provisions of Article 6 or of Article 17 shall be subtracted from the assigned amount for the transferring Party. If the emissions of a Party included in Annex I in a commitment period are less than its assigned amount under this Article, this difference shall, on request of that Party, be added to the assigned amount for that Party for subsequent commitment periods.”[xiv]

  • The Paris Agreement, 2015

Article 2[xv] of the Paris Agreement aim was to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. Additionally, the agreement aimed to strengthen the ability of countries to deal with the impacts of climate change.

Relevant Case Laws

In Ridhima Pandey v. Union of India (OA no 187 of 2017) the orders given to this petition were “This application seeks direction to assess the climate related issues while appraising projects for grant of environmental clearance. Further direction is to prepare targets or a carbon budget for the total amount of CO2 emissions that can be released until 2050 ensuring that India shares its responsibility as member of the global community to achieve global climate stabilization and reduce atmospheric CO2 to below 350 ppm by 2100, limiting the long-term average global temperature increase to no more than 1°C and direct that a time bound national climate recovery plan be prepared within the existing legal framework that includes interim CO2 reduction targets and mitigation actions tiered to achieving India’s carbon budget. the case was brought to the National Green Tribunal of India pursuant to section 2 (m) of the National Green Tribunal Act, 2010 which authorizes claims that raise “a substantial question relating to the environment” and the issue to be determined was the adequacy of India’s climate change mitigation effort vis a vis public trust doctrine and other legal obligations. However on January 15, 2019, the National Green Tribunal dismissed the case, reasoning that climate change is already covered in the process of impact assessments under the Environment Protection Act of 1986, and therefore, “There is no reason to presume that Paris Agreement and other international protocols are not reflected in the policies of the Government of India or are not taken into consideration in granting environment clearances.”[xvi]

In Re Court on its own motion v. State of Himachal Pradesh and others[xvii] February 2014, India’s National Green Tribunal issued a ruling on its motion imposing several restrictions on activity around the Rohtang Pass, an environmentally sensitive area in the Himalayan state of Himachal Pradesh.

The National Green Tribunal has jurisdiction under a 2010 statute “over all civil cases where a substantial question relating to the environment … is involved and such question arises out of [one or more of seven environmental protection statutes enacted between 1974 and 2002].” “The court may initiate cases and impose remedies. In February 2014, on its own motion, the court found that Black Carbon, which can be produced through vehicle use, is a major causative factor for the rapid melting of glaciers in the Himalayan region.” The court cited a study suggesting that 40% of the glacial retreat could be attributed to Black Carbon impact and concluded that, therefore, Black Carbon emission reduction can address glacial melting. The court concluded that Indian citizens have the right to a wholesome, clean, and decent environment, derived from Article 48A of the Constitution (which requires the state to protect and improve the environment), Article 51A (requiring a citizen to protect and improve the natural environment) and Article 21 (protecting the right to life as a fundamental right).

Comparative Analysis with other countries

Canada, for example, “has one of the world’s most ambitious carbon pricing policies—it taxes oil, gas, and coal use at $15–$38 per ton of carbon dioxide emitted.”[xviii] The revenues from carbon credits and carbon taxes can then be used for development activities or low-emission practices, thereby creating a virtuous cycle in which emissions reduction payments finance further emissions reduction—protecting and improving the environment and safeguarding forests and wildlife.[xix]

In Kenya, carbon trading operated in a legal lacuna. However, in September 2023, the Climate Change Act, No. 11 of 2016 was amended to provide express regulation of carbon markets in Kenya.[xx] The Climate Act was amended in particular to guide the development and implementation of carbon markets in compliance with international obligations, to provide policy direction on carbon markets, and to develop benefit-sharing mechanisms in carbon markets.[xxi] The amended Climate Act now provides for the establishment of a national carbon registry in Kenya and regulates trade in carbon credits.[xxii] Carbon trading projects are now required to undergo mandatory environmental and social impact assessment under Kenya’s environmental laws.[xxiii]


Climate change is no longer some far-off problem, it is happening here, it happening now” Barack Obama, former President, USA. Indeed India should access and evaluate the policies that have been put in place to ensure that they are more efficacious and that environmental justice is implemented. The youth, most of the time are left behind by many bureaucracies in economy building, this crisis on climate change is an opportunity to showcase our innovation towards green solutions and even employment opportunities.


[i] Chai Shadrack, ‘The Inception of Carbon Credits and Offsets in the Climate Action Agenda of the United Nation’ <> accessed 10 June 2024.

[ii] Mahesh Chander says, ‘Blog 201-Carbon Trading: Addressing Concerns on Why, What & How | Welcome to AESA’ (24 June 2023) <> accessed 10 June 2024.

[iii] ‘What Is Carbon Trading ? | 4 Answers from Research Papers’ <> accessed 10 June 2024.

[iv] Montgomery, W.D.”Markets in Licenses and Efficient Pollution Control Programs”.Journal of Economic Theory 5 (December 1972) :395-418

[v] Air prevention and control act, 1981

[vi][vi] Electricity Amendment Act, 2023

[vii] Bhushan C, Gopalakrishnan T. 2021. Environmental laws and climate action: A case for enacting a Climate      Legislation in India

[viii] Ins. by the Constitution (Forty-second Amendment) Act, 1976, s. 10 (w.e.f. 3-1-1977).

[ix] Constitution of India, 1950

[x] Kyoto Protocol, 2005

[xi] Article 17, Kyoto Protocol, 2005

[xii] Kyoto Protocal, 2005

[xiii] Rashid Mamunur MD “Carbon Trading,” Page 4

[xiv] ibid

[xv] Paris Agreement, 2015

[xvi] Ridhima Pandey v. Union of India

[xvii] Re Court on its own motion v. State of Himachal Pradesh and other

[xviii] Gaurav Aggarwal, ‘Carbon Trading: How It Works, Importance, & More’ (Internshala Trainings Blog, 31 May 2023) <> accessed 11 June 2024.

[xix] ‘What Is Carbon Trading? – ESG | The Report’ <> accessed 11 June 2024.

[xx]‘Lenku Quashes “Opaque” Deals on Carbon Credits | Nation’ <> accessed 11 June 2024.

[xxi]‘Kenya’s Carbon Markets: The Goose That Lays the Gold…’ <> accessed 11 June 2024.

[xxii] Wangari Ndiragu, “Unlocking full potential of floriculture industry”,2024

[xxiii] Miriri Duncan, ‘Saudi Companies Buy 2.2 Million Tonnes of Carbon Credits in Kenya Auction | Reuters’ <> accessed 11 June 2024.