Anmol Rattan Singh and Dr Deepratan Singh
The carbon credit, once a market abstraction introduced under Article 17 of the Kyoto Protocol’s
Clean Development Mechanism (CDM) (Article 12) in 1997, has now evolved into a potent global
instrument for channeling investment into emissions mitigation. Broadly bifurcated into
compliance and voluntary mechanisms, carbon credit systems today serve as foundational tools
within carbon markets1.
These allow entities to go beyond regulatory mandates and align their business practices with environmental stewardship. Countries like China, South Korea, Australia, and Japan have taken hybrid approaches by implementing state-backed voluntary markets, thereby bridging state capacity with private innovation. Globally, carbon credit markets are experiencing an exponential surge. From a valuation of USD 760 billion in 2021, projections suggest the market could touch USD 2.68 trillion by 2028. Voluntary carbon markets alone issued 278 million credits between 2010 and 2022 constituting 17 percent of global supply. This growth is not just a reflection of rising climate ambition but also the increasing financialisation of carbon as a commodity in the age of ESG-driven capitalism.
India, in this landscape, has shown a hesitant growth. Building on two existing market-based
mechanisms the ‘Perform, Achieve and Trade’ (PAT) Scheme and the Renewable Energy
Certificates (REC) system, the country has stepped into the formal architecture of carbon
markets. PAT alone has saved over 106 million tonnes of CO2 between 2015 and 2024, while REC
has fostered renewable energy capacity. The next leap came through the Energy Conservation
(Amendment) Act, 2022, which inserted Section 14 (w) empowering the Central Government to
formally specify a Carbon Credit Trading Scheme (CCTS). Pursuant to this, the Carbon Credit
Trading Scheme was notified in 2023, laying the institutional groundwork for what is now being
termed the Indian Carbon Market (ICM).
The architecture of the ICM comprises both compliance and offset mechanisms. Under the
compliance track, obligated entities in high-emission sectors—aluminium, chlor-alkali, cement,
pulp and paper—must meet emissions targets or offset shortfalls by purchasing carbon credits. A
draft notification on penalties for non-compliance was shared this year. The Bureau of Energy
Efficiency (BEE), under the supervision of the National Steering Committee for Indian Carbon
Market (NSCICM), issues Carbon Credit Certificates (CCCs), each representing one tonne of
carbon dioxide equivalent. Meanwhile, the offset mechanism designed to capture climate action
in uncapped sectors permits voluntary participation by companies, organisations, and even
individual actors who undertake projects with proven emission reductions. Eight methodologies,
including renewable energy, green hydrogen production, industrial energy efficiency, landfill methane recovery, and mangrove afforestation, have already been approved by the Central
Government to generate credits under this framework.
Of particular note is the intersection of this framework with the National Green Hydrogen
Mission and Mission LiFE. New certification rules under the hydrogen mission now link emission
offset potential to the compliance regime, especially for future inclusion of hard-to-abate
sectors such as steel and shipping. Parliament’s Standing Committee on Energy has already
called for green hydrogen hubs to be located near renewable energy-rich regions creating a
convergence between climate mitigation, regional planning, and industrial policy.
Against this backdrop, Punjab has initiated a subnational intervention into carbon finance
through its Rs 45 crore Carbon Credit Compensation Programme. Spearheaded by the Forest
Department in partnership with TERI and an international consortium, the pilot spans five
districts —Hoshiarpur, Ropar, Mohali, Pathankot, and Nawanshahr and incentivises 3,686
registered farmers to undertake tree plantation and maintenance. Rs 1.75 crore has already been
disbursed to 818 farmers in Hoshiarpur, based on a five-year stewardship cycle. What sets this
initiative apart is its activation of a long-standing, yet dormant, institutional mechanism: the
Punjab Energy Development Agency’s (PEDA) 2006 mandate as the nodal body for CDM and
carbon credit projects. With this statutory anchor, Punjab must now build its superstructure to
integrate both ‘compliance’ and ‘voluntary’ carbon markets within its policy ecosystem.
Furthermore, the government must begin to realign its approach to carbon credits, reframing
them as a strategic opportunity that simultaneously enhances environmental sustainability and
generates fiscal benefits for the state.
To unlock its latent potential, Punjab must now pivot towards institutionalisation. Since many
permutations and combinations exist, we present a few pragmatic ones, keeping in mind the
current political economy of the state where establishing new agency structures might not be
fiscally feasible for the state.
Firstly, the state should establish a formal mission-mode approach to reach its target of bringing
7.5 percent of the geographical area under green cover by 2030. This could be done under the
Green Punjab Mission which is already in place since 2012 for increasing the green cover.
However, this mission must be undertaken outside the Punjab State Compensatory Afforestation
Fund Management and Planning Authority’s (PUNCAMPA) current mandate thereby using
collaborative governance arrangement between the Directorate of Environment and Climate
Change and system support organisations (SSOs) attached to each block to help map existing
land use and afforestation patterns for sustained greening, as opposed to just compensatory
efforts. This will make sure that parts of the 11.66 percent of non-agricultural and non-forest
land (roughly 587,197.6 hectares) as per the nine-fold land use classification system (Land Use
Statistics 2022-23) are brought under the CCTS umbrella, the credits of which might benefit the
state itself. To initiate this effort, the state could opt for a region-stratified focus tapping the low
hanging fruits first, for instance, the ‘Kandi belt’ region of Hoshiarpur, SAS Nagar, SBS Nagar, and
Roopnagar (having 5 of its 8 eco-tourism forests) which collectively contain a major
concentration of northern dry mixed deciduous forests, can be tapped. These forests are known
to yield aboveground biomass ranging from approximately 96 to 311 tonnes per hectare, which
corresponds to carbon stocks of about 48 to 155 tonnes of carbon per hectare.
To support this, PUNCAMPA’s existing mandate to regulate services like climate regulation,
carbon sequestration and capacity building must be made interoperable with the Directorate of
Environment and Climate Change to exercise effective Monitoring, Reporting, and Verification
(MRV) systems. This would ensure transparency and credibility of the efforts by incorporating
periodic field inspections and the use of remote sensing technologies to monitor tree growth
and health.
Secondly, for voluntary mitigation and crediting mechanisms, the state should establish a Carbon
Credit Registry, digitally integrating it with the national ICM platform for real time verification
and traceability, under PEDA. This can then be merged with PUNCAMPA for comprehensive
assessment to quantify the carbon sequestration potential of trees planted under the Crop
Diversification through Agroforestry (CDAF) scheme giving the subsidy beneficiaries a more
lucrative nudge and making the policy sustainable in the long-run when subsidy fades out.
Lastly, Punjab should position SSOs with urban local bodies (ULBs), and place these ULBs under
the Carbon Credit Aggregator Model by building baseline carbon inventories. This would
effectively monetise emission reductions, strengthening ULB finances in the long run while
simultaneously embedding sustainable urban development practices, thus, revitalising the goals
of the now terminated Smart Cities Mission, in Punjab. A model similar to the one successfully
implemented by the Municipal Corporation of Indore could be a useful reference for this
approach.
Clubbed together, these interventions could serve as a catalyst for entrepreneurial momentum in
Punjab, potentially paving the way for the establishment of carbon trading exchanges within the
state. Such exchanges would empower small and medium-sized enterprises (SMEs), local
industries, and farmer producer organisations (FPOs) to actively participate in carbon credit
trading within a jurisdictionally tailored and demand-responsive ecosystem. For developing
economies like India and for states like Punjab the carbon credit framework represents not just
an environmental imperative but a fiscal and developmental opportunity. Moreover, evidence
suggests that companies with exclusive focus on carbon credit generation, termed ‘Carbon Core’
firms, are significantly more effective at disseminating regenerative practices, something that, if
leveraged properly, might help Punjab in the long-term. For instance, Bayer’s issuance of 250,000
tonnes of CO2 equivalent carbon credits through direct-seeded rice (DSR) farming in India this
year, is a case in point. This when clubbed with ICRIER’s recent report showing Punjab’s GHG
emissions from rice cultivation at 15,675 Gg CO eq/3.17 Mha (roughly 5,040 Kg CO eq/ha), a top
emitter, presents an opportunity for polycentric self-correction. Such projects simultaneously
advance—emission reduction, water conservation, and smallholder income, delivering
multidimensional gains.
The promise of carbon credits lies less in overnight transformation and more in opening a quiet,
strategic corridor between sustainability and market value. For Punjab, this is not a call for
radical overhaul but a pragmatic step toward embedding climate-consciousness into the state’s
economic fabric via smart inter-agency networks and collaborative governance.
Institutionalising carbon credit markets can offer modest, yet meaningful, incentives that
gradually steer agricultural practices, industrial operations, and rural livelihoods toward
decarbonisation. It is about building a new layer of value, not to replace existing sectors, but to
complement and future-proof them. Done thoughtfully, this approach can catalyse a shift, one
that aligns Punjab’s agricultural and economic development with the emerging logic of climate
markets.
Anmol Rattan Singh is Co-founder and Dr Deepratan Singh is Research Lead, PANJ Foundation.