Carbon Credit vs Green Credit: Two Market Instruments for the Environment

India now has two credit systems that reward good environmental conduct. A carbon credit represents a reduction or removal of greenhouse gas emissions, usually one tonne of carbon dioxide equivalent, and is traded under the Carbon Credit Trading Scheme, 2023 (CCTS) made under the Energy Conservation Act, 2001. A green credit is a unit of incentive for a positive environmental action of any kind, such as tree plantation, water conservation or waste management, under the Green Credit Rules, 2023 made under the Environment (Protection) Act, 1986. One measures carbon; the other rewards a wider range of ecological services.

1. Carbon Credit

The Energy Conservation (Amendment) Act, 2022 empowered the Central Government to specify a carbon credit trading scheme (Section 14(w)). The Carbon Credit Trading Scheme, 2023 was notified on 28 June 2023. The Bureau of Energy Efficiency (BEE) is the administrator, a National Steering Committee for the Indian Carbon Market oversees it, the Grid Controller of India acts as registry, and trading takes place on power exchanges regulated by the CERC. The scheme has two parts:

• a compliance mechanism, under which notified obligated entities in energy intensive sectors must meet greenhouse gas emission intensity targets; an entity that beats its target earns carbon credit certificates, while one that falls short must buy them (targets were notified in October 2025 for aluminium, cement, chlor-alkali and pulp and paper, and extended to further sectors in January 2026); and
• an offset mechanism, under which non-obligated entities may register projects that reduce or remove emissions and earn credits voluntarily.

One carbon credit certificate equals one tonne of CO2 equivalent reduced or removed. The scheme supports India's NDC targets and links to Article 6 of the Paris Agreement, which allows international transfer of mitigation outcomes. It replaced the earlier Perform, Achieve and Trade (PAT) scheme of energy saving certificates.

2. Green Credit

The Green Credit Rules, 2023 were notified on 12 October 2023 under Section 3 of the EPA, and the Green Credit Programme was launched by the Prime Minister at COP28 in December 2023. It grows out of Mission LiFE (Lifestyle for Environment). The Indian Council of Forestry Research and Education (ICFRE) is the administrator; a Steering Committee in the Ministry oversees it. A green credit is a singular unit of incentive for a specified activity delivering a positive environmental impact. The Rules list eight activities: tree plantation, water management, sustainable agriculture, waste management, air pollution reduction, mangrove conservation and restoration, ecomark and sustainable building and infrastructure. Individuals, communities, companies and local bodies may participate voluntarily. Credits are issued on verification against notified methodologies (the first for tree plantation on degraded forest land, 2024, since tightened in 2025), recorded in a registry, and may be traded on a domestic platform or used to meet obligations such as compensatory afforestation, CSR or EPR, where the law permits.

3. Key Differences

4. Legal Significance and Concerns

Both are market-based instruments that apply the polluter pays principle in reverse, rewarding the person who reduces harm rather than only penalising the one who causes it. Their credibility depends on measurement, reporting and verification, additionality and avoiding double counting. Critics warn that green credits for plantation could be used to offset forest diversion, which the Supreme Court has insisted must be genuinely compensated (T.N. Godavarman line of cases), and that credit markets must not become licences to pollute. In M.K. Ranjitsinh v. Union of India (2024), the Court's recognition of a right against climate change supports robust mitigation tools such as the CCTS.

5. Related Topics and Provisions