The state of India's climate in 2026
India is one of the most climate-exposed large economies in the world. In 2026, that exposure is no longer a projection or a modelled scenario. It is a documented reality showing up in agricultural output data, heat stress indices, insurance loss records, and hydrological monitoring across the subcontinent.
The Indian Meteorological Department's 2025 annual report identified 312 days with anomalous temperature or precipitation events across India's 36 meteorological subdivisions, the highest count since systematic monitoring began. The monsoon delivered above-average rainfall to the northeast while deficits hit the northwest and central peninsular regions for the third consecutive year. Maximum temperatures in Delhi and the Gangetic plain exceeded 45 degrees Celsius for more than 20 days in May and June 2025, up from a historical average of fewer than five days per year in the same period in the 1980s.
Glacial retreat in the Himalayas is accelerating. The Geological Survey of India's 2025 monitoring cycle found that 58% of the 1,752 glaciers monitored showed measurable retreat, with the Gangotri glacier - a primary source of the Ganga river - having retreated 22 metres in 2025 alone. This matters for carbon markets because it affects the long-run water availability assumptions embedded in many Indian agriculture and forestry project baselines.
The economic cost of weather-related events in India in 2025 was estimated at approximately USD 28 billion by Munich Re, making it the third most costly year on record after 2022 and 2023. Crop insurance claims for kharif 2025 ran at 1.4 times the five-year average. Heatwave-attributable labour productivity losses in construction and agriculture have been estimated at 4-6% of GDP in affected districts during peak months.
Greenhouse gas emissions: where India stands globally
India is the third-largest emitter of greenhouse gases globally, behind China and the United States. According to the Global Carbon Project's 2025 annual budget, India's CO2 emissions from fossil fuels and industry reached approximately 3.2 GtCO2 in 2024, representing around 7.5% of global fossil fuel emissions. When land-use change emissions are included, the figure is modestly higher.
India's per-capita emissions remain well below global averages. At approximately 2.2 tCO2 per person per year, India's per-capita emissions are roughly one-eighth of the United States' and one-third of China's. This asymmetry is central to India's position in international climate negotiations, and to the equitable framing of its climate commitments.
Methane and nitrous oxide are significant components of India's total GHG profile. India's agricultural sector - the largest in the world by workforce - is a major source of both gases. Rice cultivation produces methane from anaerobic decomposition of organic matter in flooded paddies. Livestock, particularly the country's large buffalo and cattle population, contribute enteric fermentation methane at scale. Fertiliser application generates nitrous oxide across more than 140 million hectares of cropland.
India's energy sector remains heavily coal-dependent. Coal accounted for approximately 55% of installed power generation capacity as of late 2025, and coal-fired generation produced roughly 70% of the country's electricity. The power sector is the single largest source of CO2 in India's emission profile, responsible for an estimated 1.1 GtCO2 equivalent annually.
The cement and steel sectors are growing contributors. India is the world's second-largest cement producer and is expanding capacity to support a massive infrastructure build programme. Steel production, driven by National Infrastructure Pipeline projects, has grown at approximately 8% per year since 2022. Both sectors are hard-to-abate in the near term and are priority targets for India's industrial carbon credit programmes.
Climate policy in India: NDCs, CCTS, BRSR, SBTi
India's climate policy framework has become significantly more complex and more operational since 2022. The major pillars are the Nationally Determined Contribution update, the Carbon Credit Trading Scheme, the SEBI Business Responsibility and Sustainability Report requirements, and the growing adoption of Science Based Targets.
India's updated NDC, submitted ahead of COP30, commits to three headline targets: reducing the emissions intensity of GDP by 45% by 2030 relative to 2005 levels; achieving approximately 50% of cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030; and creating an additional carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent through additional forest and tree cover by 2030.
The Carbon Credit Trading Scheme (CCTS), notified under the Energy Conservation (Amendment) Act 2022, is the most consequential domestic policy development for carbon markets. It establishes a legal framework for carbon credit generation, trading, and surrender in India. The Bureau of Energy Efficiency (BEE) administers the scheme under the Ministry of Power. The first compliance periods are expected to begin in 2026-27, with industrial facilities in the PAT scheme among the first obligated entities.
BRSR (Business Responsibility and Sustainability Reporting) requirements, introduced by SEBI for the top 1,000 listed companies from FY2022-23, have created a new disclosure infrastructure for corporate climate and sustainability claims. The BRSR Core framework, with its assurance requirements for key performance indicators, is pushing Indian corporates toward more rigorous and independently verifiable ESG data. Carbon credit purchases are increasingly disclosed under BRSR frameworks, raising the reputational stakes for credit quality.
Science Based Targets initiative (SBTi) adoption among Indian companies has grown rapidly. As of early 2026, more than 180 Indian companies have committed to SBTi targets, including many in sectors such as IT services, pharmaceuticals, consumer goods, and financial services. SBTi's Corporate Net-Zero Standard limits the use of carbon credits to residual emissions, but the growth of SBTi commitments signals the seriousness of corporate climate intent and creates demand for high-quality, independently assessed credits for near-term interim claims.
Sectoral impact: agriculture, water, infrastructure, energy
Agriculture is India's most climate-exposed sector. The sector employs more than 40% of the workforce and contributes around 15% of GDP. In 2025, India's aggregate kharif output fell 6% below the 10-year average, driven by uneven monsoon distribution and an extended heat spell at grain-filling stage across parts of Madhya Pradesh and Rajasthan. Rabi output partially recovered, but total food grain production for 2025-26 is estimated below the government's initial targets.
These agricultural disruptions have direct relevance for carbon project baselines. Cookstove projects in affected districts face altered fuel-use patterns as crop residues become less available. Agricultural soil carbon projects face uncertainty in soil moisture conditions that affect the carbon sequestration rates their monitoring plans assumed. V4 adjusts baseline scenarios in affected districts when IMD data supports a departure from historical norms.
Water stress is an emerging cross-sectoral constraint. The Central Water Commission's 2025 report found that 19 of India's 20 major river basins showed reduced annual flow compared to the 1990-2020 average, in 12 cases by more than 15%. Groundwater depletion in the Indo-Gangetic Plain is accelerating. These trends create direct risks for hydroelectric power projects, whose credit volumes depend on generation assumptions, and indirect risks for forestry projects in water-stressed landscapes.
Infrastructure is both a major source of emissions and a major target of climate investment. The National Infrastructure Pipeline, with a planned outlay of INR 111 lakh crore through 2030, encompasses roads, railways, airports, ports, urban infrastructure, and digital connectivity. The emission footprint of this build-out is substantial, and is one reason India's absolute emissions are expected to continue rising even as emissions intensity declines.
The energy transition is advancing but remains coal-anchored. Renewable energy capacity additions in FY2025 reached a record 28 GW, bringing total installed renewable capacity to approximately 230 GW. The solar sector is the primary driver, with utility-scale solar and solar-plus-storage both accelerating. Grid integration remains a challenge, with curtailment in some renewable-heavy states reaching 15-20% in off-peak periods.
The role of carbon markets in India's climate strategy
Carbon markets serve two functions in India's climate strategy. First, they channel private capital toward emission reduction and removal activities that the government cannot directly fund at scale. Second, they provide price signals that guide investment decisions in sectors where regulatory mandates have not yet reached.
India is the third-largest source of carbon credits globally. Verra registry data shows that Indian projects have issued more than 200 million Verified Carbon Units (VCUs) cumulatively, with annual issuance running at approximately 30-35 million VCUs as of 2025. The dominant project categories are renewable energy, cookstoves, forestry, and biogas, in roughly that order by credit volume.
The quality distribution of these credits is uneven. A significant portion of India's renewable energy credits were issued under methodologies that are now considered to have inadequate additionality standards for grid-connected projects. A portion of cookstove credits are under investigation or have had vintages cancelled following the 2024 over-crediting findings. Forestry and biogas projects generally show stronger quality profiles, though with exceptions.
The CCTS is creating new demand dynamics. As compliance entities seek CCTS-eligible offset credits, the quality-price relationship that has historically been compressed in the voluntary market will tighten. Credits with strong independent quality documentation will command premiums. Credits with unresolved methodology questions will face increasing price discount or buyer avoidance.
ICVCM Core Carbon Principles, launched in 2023, represent the international voluntary market's attempt to establish a minimum quality floor for credits. Several Indian project types are under ICVCM assessment. The outcome of those assessments will materially affect the tradability of Indian credits in international voluntary markets.
What businesses operating in India should know
Businesses operating in India, whether as project developers, credit buyers, or regulated entities under the CCTS, face a rapidly evolving market landscape with several practical implications.
For project developers, the quality bar is rising. Registry approval alone is no longer sufficient for premium pricing. Buyers at the institutional end of the market - large corporates with SBTi commitments, financial institutions with net-zero pledges, and sovereign buyers under Article 6 frameworks - are increasingly requiring independent quality assessments before purchase. Developers who invest in robust monitoring, community documentation, and independent rating will be positioned for the premium segment of the market.
For credit buyers, the key risk is reputational. Purchasing Indian credits without independent quality assessment exposes buyers to the risk of post-purchase credibility failures of the kind that affected multiple large cookstove programmes in 2024-25. Due diligence is not optional in a market where a significant proportion of historical issuances have been found to have over-crediting issues. V4 ratings provide the due diligence infrastructure that most buyers cannot efficiently build themselves.
For compliance entities under the CCTS, the central question is eligibility. As BEE finalises the criteria for offset track credits that can be surrendered under the compliance track, entities that begin building their credit procurement strategies now - rather than waiting for final rules - will be better positioned. The credits most likely to satisfy stringent CCTS eligibility criteria are the same credits that score highest on V4's rating dimensions.
For financial institutions and fund managers, Indian carbon markets represent both an investment opportunity and a risk management challenge. The growth of Indian carbon credit volumes and the structural demand created by the CCTS make this an asset class worth understanding. The quality heterogeneity of the market makes independent rating a necessary input into any portfolio construction or due diligence process.
Frequently asked questions
Q: Is India on track to meet its NDC targets for 2030?
India's emissions intensity is declining, and renewable energy capacity is expanding rapidly. The 45% intensity reduction target is considered achievable based on current trajectory, though it depends on continued strong renewable additions and energy efficiency gains in industry. The forest carbon sink target faces more uncertainty due to pressures on forest land from infrastructure expansion.
Q: What is the difference between CCTS compliance credits and voluntary carbon credits?
CCTS compliance credits are issued under India's domestic regulatory framework and can be used to meet mandatory compliance obligations under the Carbon Credit Trading Scheme. Voluntary carbon credits are issued under international registries like Verra or Gold Standard and are used for voluntary corporate climate commitments. The two markets have different eligibility rules, though there is expected to be some overlap as CCTS criteria are finalised.
Q: How does climate change affect the value of carbon credits from Indian projects?
Climate change can affect carbon credit value through several channels. Permanence risk increases for forestry projects in drought-stressed or wildfire-exposed landscapes. Baseline assumptions in cookstove and agriculture projects may shift as climate patterns change. Water availability affects hydroelectric project outputs. V4 integrates IMD climate data into permanence and monitoring assessments to capture these risks.
Q: Why is India's per-capita emission figure relevant to carbon market discussions?
India's low per-capita emissions are relevant because they underpin India's negotiating position in international climate frameworks, which affects the pace and scope of India's emission reduction obligations. They also contextualise the equity dimension of carbon market design: India's large population means that even modest per-capita reductions translate into large absolute volumes, but the social and economic development imperatives of a country with hundreds of millions in poverty create real constraints on the speed of transition.
Q: What should a corporate buyer new to Indian carbon markets know first?
Start with quality assessment. The Indian carbon market is large, growing, and heterogeneous in quality. Not all credits are equivalent, and the price difference between high-quality and low-quality credits does not fully reflect the quality difference. Independent ratings, project-level disclosure review, and registry status checks are the minimum due diligence for any buyer. V4 ratings provide a structured, India-specific quality signal designed for this purpose.