In 2024, the global carbon credit market was valued at around $1.4 billion. This was slightly below the peak of $1.7 billion in 2022. By 2030, the market is projected to reach between $7 billion and $35 billion. By 2050, it could climb to $250 billion. With such a big market on cards, India cannot afford to miss out.

As India prepares for the Union Budget of 2025-26, the carbon market industry is looking toward measures that will accelerate the country’s journey toward its climate goals. With India’s ambitious target of achieving net-zero emissions by 2070, the importance of carbon markets, green hydrogen, carbon capture, utilisation and storage (CCUS), and other innovative climate solutions cannot be overstated. The carbon market industry is eager for clear policy frameworks, targeted incentives, and strategic funding mechanisms that will drive both emission reductions and sustainable economic growth.

Clarification and Streamlining of Carbon Credit Trading System (CCTS) Rules

One of the most anticipated developments for the carbon market sector is a clear and robust set of rules governing the Carbon Credit Trading System (CCTS). With the recent surge in interest in carbon markets, stakeholders from various sectors are eagerly waiting for clarity on regulatory frameworks and standards for carbon offset and its utilisation in regulatory CCTS system. To meet the country’s climate commitments, it is crucial that the Union Budget 2025-26 provides definitive guidelines on how Indian carbon offsets can help obligated entities in regulatory CCTS system to meet their commitments. A clarity will help in demand creation of Indian Voluntary Carbon Market Mechanism under Carbon Offset component of CCTS and attract participation of Indian corporates.

Incentives and Subsidies for Green Hydrogen Development

Green hydrogen is increasingly seen as a critical component of India’s decarbonisation strategy. It has the potential to transform key industries such as energy, transportation, and manufacturing, all while reducing emissions. The Union Budget is expected to incentivise the development and production of green hydrogen by offering subsidies and financial support for research and development (R&D), as well as facilitating commercial-scale deployment, which is where carbon market can play a huge role.

As part of the 2025-26 Budget, the government should announce enhanced PLI incentives for the production of green hydrogen, making it more affordable for industries to integrate into their operations. This can include tax rebates, grants for setting up green hydrogen plants, and long-term purchase agreements to ensure the growth of the sector. The government should explore ways to enhance the infrastructure for transporting and storing green hydrogen to facilitate seamless integration into the energy grid and various industrial applications.

Support for Carbon Capture, Utilisation, and Storage (CCUS) Technologies

CCUS is another crucial technology for India’s decarbonisation journey. As one of the world’s largest emitters, India’s carbon-intensive industries will need a combination of innovative solutions like CCUS to meet emission reduction targets. The Indian carbon market industry is expecting the Union Budget to provide targeted incentives for CCUS projects, which have the potential to capture and repurpose carbon dioxide emissions from industrial sources.

Incentives for setting up CCUS projects, both at pilot and commercial scales, will help accelerate the adoption of these technologies. Financial support for R&D in CCUS technologies and collaboration with global partners to bring advanced solutions to India will be critical. The establishment of a dedicated CCUS fund or a carbon pricing mechanism will promote the large-scale implementation of these technologies in sectors such as power, cement, steel, and chemicals.

Grid Integration and Renewable Energy Infrastructure Development

The integration of renewable energy sources into the national grid is crucial for India to meet its renewable energy targets. However, the intermittency of renewable sources like solar and wind presents a challenge for grid stability. Therefore, the carbon market industry is hoping for increased budget allocations for the development of energy storage technologies and enhanced grid infrastructure.

The Union Budget should propose measures to incentivise the integration of renewable energy into the grid, such as grants for the development of energy storage projects (like batteries), as well as subsidies for grid modernisation. Investment in smart grid technology and decentralised renewable energy solutions will also be essential for improving the efficiency of energy distribution across the country, reducing carbon footprints, and meeting emission reduction goals.

Allowing CSR Funds for Community-Based Decarbonisation Actions

A unique and highly anticipated expectation from the carbon market industry is the inclusion of Corporate Social Responsibility (CSR) funds in supporting community-based decarbonisation actions. India’s vast rural landscape and diverse communities have the potential to significantly contribute to country’s decarbonization. By allowing CSR funds to be channeled into decarbonization projects at the community level and allowing carbon offsets generated from such activities for utilization of the corporate footprints, the government can tap into the corporate sector’s growing interest in climate action. These initiatives can include community-based decentralised renewable energy projects, RE based clean cooking interventions, waste-to-energy solutions, afforestation programs, and more.

CSR contributions toward decarbonisation projects can be paired with carbon offset credits, providing companies with an opportunity to reduce their environmental footprint while contributing to social welfare. A structured policy on CSR-funded decarbonisation projects would offer a scalable solution for reducing emissions at the grassroots level while supporting local economic development.

Promoting Sustainable Practices Across Industries

India’s carbon market industry is also looking forward to government support for scaling up sustainable practices in manufacturing and agriculture. This means incentives for industries adopting circular economy practices, waste management technologies, and sustainable agriculture methods. Subsidies for industries investing in energy-efficient technologies and low-carbon production processes will be vital for India’s transition to a low-carbon economy.

The introduction of clear guidelines for carbon credit generation from these sectors could further strengthen the link between environmental sustainability and economic growth. By creating a favourable ecosystem for low-carbon investments, the government can ensure that India’s carbon market becomes an engine for sustainable development.