Offset Mechanism under the Indian Carbon Market

Now companies in India can compensate for their greenhouse gas (GHG) emissions by investing in projects that reduce or remove carbon emissions elsewhere.

In June 2023, the Indian government notified the Carbon Credit Trading Scheme, and laid the foundation for the Indian Carbon Market (ICM) by establishing the institutional framework, including the National Steering Committee for Indian Carbon Market (NSCICM).

Six months later, in December 2023, the scheme was amended to introduce the offset mechanism, enabling participation from non-obligated entities through voluntary climate mitigation projects.

Moving the journey of the carbon market forward, the Government of India has now approved the Detailed Procedure for the Offset Mechanism and eight different methodologies under the offset mechanism. This marks a major step forward in the operationalization of the Offset Mechanism under the Indian Carbon Market.

The Offset Mechanism will encourage voluntary participation by entities for developing projects that reduce, remove, or avoid greenhouse gas (GHG) emissions. For example, if a company emits 1,000 tons of CO₂ per year, it might buy 1,000 carbon credits to offset that amount, thus counterbalancing its emissions.

This framework enables businesses, industries, and organizations—particularly those not covered under the compliance mechanism—to participate in climate action and receive carbon credits for verified emission reductions.

This mechanism will enable India to tap climate change mitigation from sectors not covered under the compliance mechanism and can incentivize actions in such sectors.

Eight methodologies under the Offset Mechanism, approved by the Central Government, include methodologies for renewable energy (including Hydro and Pumped storage), green hydrogen production, industrial energy efficiency, landfill methane recovery, and mangrove afforestation and reforestation. These methodologies are expected to support a wide range of climate-friendly projects for voluntary carbon credit generation.

Critics of the offset mechanism argue that it can be used as a “get-out-of-jail-free card” that allows companies or governments to continue polluting without making substantial changes to their operations. However, when well-managed, carbon offsets can provide significant benefits for the environment by supporting projects that would not have been viable without external funding.