Intensity-Based Target

An intensity-based (or rate-based) ETS sets limits on emissions per unit of output rather than on total emissions. This is the foundation of India's Carbon Credit Trading Scheme (CCTS).

The benchmark

A benchmark intensity is published for each sector — for example, 0.72 tCO₂e per tonne of cement produced. Every compliance period, the benchmark tightens by a fixed percentage (e.g. 4%). Firms that beat the benchmark earn carbon credits; firms that fall short must buy credits to comply.

Credits, not allowances

• A firm that produces below its intensity target generates carbon credits (surplus credits).
• A firm that produces above its intensity target has a deficit and must purchase credits.
• The total supply of credits is not fixed in advance — it depends on how much output the sector produces.

Why India chose intensity targets

India's industrial output is growing rapidly. Absolute caps could penalise legitimate economic growth and deter investment. Intensity targets allow output to grow as long as emissions per unit fall, aligning climate ambition with development goals.

The key trade-off

Environmental certainty is lower than under an absolute cap: if output grows faster than the benchmark tightens, total emissions may still rise. But economic certainty is higher — firms know their compliance cost per unit of production before the period begins.

In the simulator

Intensity-based is the default mode for India games. Each firm's compliance position is determined by comparing its actual intensity against the current period's benchmark.