Carbon Credits for India's Pulp and Paper Sector: What CCTS Compliance Requires
Paper mills were among the first Indian industries pulled into a binding carbon market. When the Ministry of Environment, Forest and Climate Change notified greenhouse gas emission intensity targets in October 2025, pulp and paper was in the opening batch alongside aluminium, cement and chlor-alkali — ahead of iron and steel, refineries and fertilisers.
That sequencing matters more than most mills realise. Compliance obligations under the Carbon Credit Trading Scheme are already running for financial year 2025–26, and they apply retroactively to performance from 1 April 2025. If your unit is on the obligated entity list, the emissions being measured have already happened.
What the CCTS obligation actually looks like for a paper mill
The scheme sets a greenhouse gas emission intensity target — emissions per unit of output — rather than an absolute cap. In practice that means:
Growth is not automatically a breach. Raise production and your allowed emissions rise with it, provided intensity holds.
The baseline is FY2023–24. Compliance years are FY2025–26 and FY2026–27, with targets notified at sub-sector level.
Targets are plant-specific. Allocation uses relative benchmarking, so your number reflects your technology, current efficiency, scale and retrofit potential — not a flat sectoral figure.
Over-performance earns certificates. Beat your target and you receive Carbon Credit Certificates, tradeable on India's power exchanges. Fall short and you must buy and surrender an equivalent number.
Non-compliance is priced. Entities that fail to surrender face environmental compensation set at twice the average carbon credit price.
Compliance obligations are now in force for roughly 490 entities across seven sectors, which together account for an estimated 15 to 20 per cent of India's total greenhouse gas emissions.
Why the first cycle is gentler than it looks
Final targets landed about five months after the compliance period had already begun. Because of that, the government applied a pro-rata recalibration, scaling targets down to account for the elapsed period. The result is a first cycle that is noticeably less demanding than the draft.
CEEW's analysis puts the cost of that recalibration at roughly a 16 per cent reduction in emission-reduction potential for pulp and paper relative to the draft targets, part of an estimated 2.8 million tonnes of CO2 equivalent in lost ambition across the four October-notified sectors by 2027. Targets are also back-loaded, with the larger share of the required cut falling in FY2026–27.
The practical read for a mill: first-cycle compliance is achievable for most reasonably run integrated units. The second cycle is where it starts to bite. Treating cycle one as the steady state is the mistake to avoid.
Where paper mills find the tonnes
Pulp and paper is unusual among the notified sectors in that a large share of its abatement sits in equipment mills already own. The standard levers, roughly in order of payback:
Recovery boiler and black liquor handling efficiency — the single biggest energy lever in an integrated mill
Cogeneration and steam system optimisation, including trap surveys and condensate recovery
Fuel switching from coal to biomass and agricultural residue, where supply chains are reliable enough
Drying section efficiency, waste-heat recovery and variable frequency drives on major motors
Higher recycled fibre share, where product specification and effluent load allow it
Before modelling any of these, confirm exactly what the notified boundary includes for your sub-sector. The abatement that counts is the abatement inside the boundary, and mills routinely build business cases on savings that sit outside it.
What to do before the next compliance date
The first compliance date for FY2025–26 falls on 31 July. A workable sequence:
Confirm obligated status and sub-sector. Thresholds and sub-sector definitions come from the notification itself — check the published entity list rather than assuming.
Rebuild the FY2023–24 baseline to audit standard. Weak baseline data is the most common reason a defensible position becomes an indefensible one.
Model FY2026–27, not just the current year. The back-loaded target is the real constraint.
Decide buy versus abate deliberately. Banking is proposed to be unlimited, which gives early over-performance genuine option value.
Get MRV and registration in order. The Indian Carbon Market Portal launched on 21 March 2026 and handles registration through to certificate issuance, including accreditation of third-party verifiers.
Understand the offset route separately. The CCTS offset mechanism lets non-obligated projects earn certificates, but it is a distinct track from your compliance obligation.
The market you are buying into
Cement and aluminium both hold deep pools of low-cost abatement and are widely expected to become net sellers of certificates. That points to potential oversupply and downward pressure on prices in the first phase — useful if your mill is short, unhelpful if you were counting on monetising a surplus. First certificate trading is expected around mid-2026, and no linkage currently exists between the offset mechanism and the compliance market.
If you are building a business case on selling surplus certificates, stress-test it against a low price. Our note on how carbon credit prices are set in India covers the mechanics, and the first compliance deadline briefing sets out what surrender day requires.
Csquare works with Indian manufacturers on CCTS baselines, gap analysis and carbon credit procurement. If you run an integrated mill and are not yet certain where you land against your target, talk to our team — the gap is far cheaper to close now than in the second cycle.
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