To advance the establishment of a carbon market in India, the government has approved a comprehensive framework for the offset mechanism across eight key sectors. These include renewable energy, green hydrogen production, industrial energy efficiency, landfill methane recovery, and mangrove afforestation and reforestation. An offset mechanism is a voluntary system that allows entities to compensate for their greenhouse gas emissions by investing in projects that reduce, remove, or avoid emissions in other locations, thereby earning carbon credits.

The framework approved by the government enables businesses, industries, and organisations – particularly those not covered under the compliance mechanism – to participate in climate action and receive carbon credits for verified emission reductions. The power ministry stated on Friday, "This represents a significant advancement in the implementation of the Offset Mechanism under the Indian Carbon Market (ICM)."

In June 2023, the government introduced the Carbon Credit Trading Scheme, marking the establishment of the Indian Carbon Market. This initiative also laid the foundation for a robust institutional framework, including the formation of the National Steering Committee for the Indian Carbon Market. In December 2023, the scheme was revised to include the introduction of an 'offset mechanism', allowing non-obligated entities to participate through voluntary climate mitigation projects.

The offset mechanism will incentivize voluntary participation by entities in developing projects that reduce, remove, or avoid greenhouse gas emissions. The mechanism will allow our country to leverage climate change mitigation opportunities in sectors not included under the compliance framework while also incentivising actions within these sectors. The approved methodologies are designed to facilitate a diverse array of climate-friendly projects aimed at generating voluntary carbon credits.