Invited Speaker: Shreeyash Nitin Malode

Strengthening India’s Carbon Credit Trading Scheme (CCTS)

These are my views and comments prepared for the Asia Society Policy Institute (ASPI) Roundtable Discussion on the effective interaction between India's CCTS and the Power Market.
Date: 13 May 2026 | Venue: India Habitat Centre, New Delhi

1. Why and How Should the Power Sector be Included in the CCTS?

Strategic Rationale

Significant Contributor: Power sector dominates national GHG emissions; excluding it leaves a critical gap.
Achieving NDCs: A necessary first step to reduce emission intensity by 47% by 2030.
Competitiveness: Prepares Indian export industries for external trade regulations like the EU's CBAM.

Mechanism for Inclusion

Carbon-Adjusted Dispatch: Implement a Carbon Footprint-Based Economic Dispatch Model (CF-EDM).
Emission-Based Thresholds: Shift from PAT's energy consumption thresholds to direct GHG emission thresholds.
Multi-Year Trajectories: Provide long-term visibility for capital-intensive clean energy investments.

Addressing Energy Security

Resource Adequacy (RA): Integrate CCTS objectives with 5-10 year RA frameworks (Planned Reserve Margins).
Demand-Side Management: Use Demand Response (DR) securely to manage peak load without firing up heavy-emitting thermal plants.
Rolling Targets: Use 3-year rolling average targets instead of rigid annual cliffs for operational flexibility.

Main Concerns to Address

Oversupply of Credits: Utilize Data Envelopment Analysis (DEA) benchmarking to set ambitious targets.
Weak MRV: Mandate Continuous Emission Monitoring Systems (CEMS) backed by 3rd-party validation.
Market Illiquidity: Issue tradable credits for *all* verified reductions to boost liquidity.
Governance: Enforce escalating financial penalties (3-10x market value).

2. Achieving an Effective CCTS - Power Market Interaction

How CCTS carbon costs should be reflected in power plant dispatch decisions and passed through to consumers.

Market Integration

Adopt the Carbon-Adjusted Energy Charge Rate (CA-ECR) into the Merit Order Dispatch.
Allow short-term power exchanges to clear based on integrated carbon costs.
Replace static price caps with dynamic price caps adjusting to market outcomes.

Consumer Protection

Pass compliance costs transparently in the Annual Revenue Requirement (ARR).
Recycle Premium Pools: Use windfall gains from clean generators to fund consumer relief programs.
Rationalize existing fossil fuel levies (e.g., Clean Energy Coal Cess) to prevent compounding consumer burden.

Phased Action Plan & Roadmap Diagram

Phase 1: Institutional & MRV Setup

Mandate CEMS, define energy consumption boundaries (including captive power), and harmonize classifications with HSN and NIC codes.

Phase 2: Transitional Trading & Liquidity

Initiate market liquidity via "deemed conversion" of existing PAT ESCerts and RECs into carbon credits, held in demat form.

Phase 3: Integration into Economic Dispatch

Formally introduce the CA-ECR into power exchange bidding behavior and tariff structures, favoring gas and renewables over coal.

Phase 4: Market-Based Target Stringency

Transition to a rolling 3-year market-based framework with restricted banking. Activate a Carbon Market Stability Reserve.

Phase 5: Global Alignment & Strict Penalties

Enforce deterrent-level financial penalties and fully align CCTS with Article 6 of the Paris Agreement to offset EU-CBAM impacts.