From PAT to CCTS: Can India’s New Carbon Market Fix the Past?
By Shruti Katiyar
India is on the cusp of launching a bold new experiment in carbon pricing. The Carbon Credit Trading Scheme (CCTS), expected to be fully operational by 2026, aims to replace the decade-old Perform, Achieve, and Trade (PAT) scheme. Where PAT focused on energy efficiency, the CCTS sets its sights directly on greenhouse gas (GHG) emissions, promising a more climate-aligned approach. But will it succeed where PAT faltered?
What Was the PAT Scheme, and Why Didn’t It Work?
Launched in 2012 by the Bureau of Energy Efficiency (BEE), PAT targeted large industrial sectors like steel, cement, and power. It assigned Specific Energy Consumption (SEC) targets to factories, rewarding over-performers with Energy Savings Certificates (ESCerts) and penalizing under-performers. The PAT scheme has been implemented in six cycles since 2012, with each cycle typically spanning three years and progressively expanding in sectoral and industrial coverage—from 478 units in Cycle I to over 1,300 by 2024. Although the scheme saved 25.77 million tonnes of oil equivalent (MTOE) in 2022-23, PAT didn’t drive the transformative change India needed. Here’s why:
Weak Targets: Many facilities easily beat their goals without new technology. For example, thermal power plants had just a 3% reduction target over three years. Given that India's coal-fired thermal power plants consume about 0.7 kg of coal per kWh—significantly higher than the U.S. average of 0.45 kg/kWh—setting a mere 3% reduction target over three years allowed many facilities to meet goals without substantial efficiency improvements.
Ineffective Market: ESCerts flooded the market. With low demand, prices crashed. Only 1.5 million out of 3.8 million ESCerts issued in Cycle I were traded.
Poor Transparency: Reporting and audits lacked consistency. Public access to performance data was limited.
Lax Enforcement: Non-compliant facilities often faced no real penalties.
Short Time Horizons/Compliance Cycles: Three-year cycles discouraged long-term investments in clean technology.
While PAT delivered some energy savings, it wasn’t enough to steer India toward its climate goals—a 45% reduction in emissions intensity by 2030 and net-zero by 2070.
Enter CCTS: A Stronger Carbon Market Framework
The Carbon Credit Trading Scheme, introduced through the Energy Conservation (Amendment) Act, 2022, aims to learn from PAT’s limitations. Starting in FY 2025-26, it will cover around 800 industrial units in nine sectors, including cement, aluminium, and textiles. The CCTS is designed to encompass multiple greenhouse gases (GHGs), not just carbon dioxide (CO₂). Specifically, the scheme currently covers CO₂ and perfluorocarbons (PFCs) such as CF₄, C₂F₆, C₄F₁₀, and C₆F₁₄. The CCTS brings several game-changing elements:
1. Direct GHG Targets
Instead of energy consumption, facilities are assigned emissions intensity targets (e.g., tons of CO₂ per ton of output). These targets are based on sector-specific decarbonization potential and will be updated every three years. For instance consider the aluminium industry: Vedanta Limited’s Smelter II in Odisha had an emissions intensity of 13.4927 tCO₂e per tonne of aluminium in 2023–24. Under the CCTS, this target is set to reduce to 13.2260 tCO₂e in 2025–26 and further to 12.8259 tCO₂e by 2026–27.
2. Baseline-and-Credit System
Companies that emit less than their target can sell Carbon Credit Certificates (CCCs); those that exceed must buy credits. One CCC equals one tonne of CO₂e reduced.
3. Market-Based Trading
Credits will be traded on regulated power exchanges under the oversight of the Central Electricity Regulatory Commission (CERC). Unlimited banking of credits is allowed.
4. Robust MRV System
The CCTS requires strict Monitoring, Reporting, and Verification (MRV) using IPCC-aligned methodologies. Third-party verifiers will ensure data integrity.
5. Voluntary Credit Mechanism
Businesses outside the mandatory sectors (e.g., agriculture or renewables) can generate CCCs by registering climate-friendly projects.
6. Institutional Backbone
The scheme will be jointly governed by the Ministry of Power, MoEFCC, BEE, and CERC, with a centralized registry managed by the Grid Controller of India.
Will CCTS Succeed Where PAT Failed?
CCTS goes beyond PAT by covering not just direct emissions (Scope 1), but also indirect emissions from purchased electricity (Scope 2), and may eventually include value chain emissions (Scope 3), making it more comprehensive and aligned with global standards..
Yet success is not guaranteed. Several risks loom:
Weak Targets: If emissions intensity targets are set too leniently—due to industry pressure or conservative benchmarking—it could lead to a surplus of Carbon Credit Certificates (CCCs), weakening market incentives despite the scheme’s more advanced design..
Enforcement Lapses: Penalties must be credible and enforced. PAT suffered from non-punitive compliance.
Equity Concerns: Small firms may lack the capital or capacity to meet targets, while larger players benefit.
Coordination Complexity: A multi-agency governance structure needs streamlined roles and strong inter-agency cooperation.
What Needs to Happen Next
To ensure success, India must:
Set science-based, ambitious targets.
Introduce a price floor to maintain carbon credit value.
Ensure quality assurance for voluntary credits.
Strengthen penalties and compliance checks.
Support smaller firms with finance and technical aid.
Ensure transparent data disclosure for public scrutiny.
Keep political pressure in check to avoid watering down enforcement.
A Carbon Market with Potential
CCTS is not just a replacement for PAT; it’s a comprehensive upgrade. By targeting emissions directly and linking compliance to tradable credits, it aligns better with India’s climate commitments. With effective oversight, clear rules, and equitable support, CCTS could become a model for emerging economies on using markets to tackle climate change. But its success depends on execution. If India applies the lessons of PAT and builds a transparent, accountable, and ambitious system, the carbon market could finally deliver on its promise.
Shruti Katiyar is currently pursuing her Master’s in International Business at The Fletcher School, Tufts University and is a compliance and policy specialist with a background in financial regulation, ESG frameworks, and legal risk analysis.