The carbon market transforms emission reductions into tradeable units, assigning financial value to CO₂ cuts and directing capital toward the most cost-effective abatement opportunities.
Carbon Footprint encompasses all greenhouse gases linked to business operations and sales, expressed in CO₂ equivalents using Global Warming Potentials for standardization.
Two primary market types exist:
Government-regulated cap-and-trade systems requiring companies to hold allowances matching their emissions. Non-compliance results in penalties.
Companies voluntarily purchase credits from emissions-reduction projects to offset their carbon footprint or meet internal sustainability goals.
Understanding emission boundaries is critical for accurate measurement:
Fuel combustion and gas leaks under direct control:
Emissions from purchased energy consumed at facilities:
All upstream and downstream emissions:
Rule of Thumb: If you operate/control it → Scope 1/2. If you buy/book it or it is embedded in what you sell → Scope 3.
Indian exporters in CBAM sectors face EU buyer pressure for emissions data and carbon-inclusive pricing. Early movers with documented low-carbon intensity gain competitive advantage as markets tighten.
Essential metrics to capture for accurate carbon accounting:
| Category | What to Capture | Evidence |
|---|---|---|
| Grid Electricity | kWh/site; demand charges | DISCOM bills, meter logs |
| Fuels | Liters/kg by site or vehicle | Invoices, fleet cards, logbooks |
| Refrigerants | Top-ups/leaks by gas type | Service records, job cards |
| Business Travel | Air/rail/road km and nights | Travel management exports |
| Freight | Ton-km by transport mode | 3PL invoices, ERP data |
| Materials | Mass/value for major items | GRN records, vendor bills |
| Renewable Energy | On-site generation or purchases | Inverter data, PPA agreements |
Carbon credits are verified units representing one tonne of CO₂e reduced or removed, issued on registries with unique serial numbers. Projects include:
Typical Flow: Project issues credits → You buy credits → Seller (or you) retires them to your company name on registry → You disclose the retirement and make a precise claim.
Key developments expected in the next 3-5 years:
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