The Green Credit Rules: Unlocking Sustainable Growth

As the global economy shifts towards sustainability, India is taking a significant step with the introduction of the Green Credit Rules (“GCR”), 2023, notified in February 2024. These rules, notified under the Environment (Protection) Act, 1986, mark a progressive attempt by institutionalizing a market-based mechanism for incentivizing environmentally beneficial activities. Implementation of the GCR, particularly with respect to technical aspects like ambiguous methodology and interplay with other schemes, require expert scrutiny. This article briefly discusses India’s Green Credit Program, its impact on infrastructure projects and explores key challenges in the implementation of this policy in India.

What Are Green Credit Rules?

The Green Credit Programme (“GCP”) is a government initiative to encourage and reward environmentally positive actions either voluntarily or as part of regulatory obligations through tradable “Green Credits”. These credits are awarded for actions such as Afforestation, Water conservation, Waste management, Air pollution reduction, Sustainable building practices, and Sustainable agriculture. Green Credits can be used as Compensatory afforestation compliance (Van (Sanrakshan Evam Samvardhan) Adhiniyam, 1980), Environmental, social and Governance (“ESG”) reporting and Corporate Social Responsibilities disclosures.  There are no guidelines but Green Credits will likely be classed as “intangible assets” for taxation purposes (similar to Renewable-Energy Certificates).

It is open to government bodies, PSUs, NGOs, private companies, philanthropies, individuals. It establishes a Green Credit Registry for the registration and issuance of each Green Credit, where registration is done electronically via a designated platform. Activities are verified by a designated agency, followed by Indian Council of Forestry Research & Education (“ICFRE”) issuing a Green Credit Certificate.

Does the Green Credit Program Also Cover Carbon Credits?

The Green Credit program operates independently of the carbon credits provided under the Carbon Credit Trading Scheme, 2023, which is governed by the Energy Conservation Act, 2001. Carbon credits, also known as carbon offsets, are permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of 1 ton of carbon dioxide or the equivalent in other greenhouse gases.

Advantages for Infrastructure Projects

Infrastructure and large-scale projects often have significant environmental footprints. The Green Credit Rules offer both a tool for compliance and an incentive for sustainability:

·      Improved ESG Profiling and Risk Mitigation: Institutional investors and lenders are increasingly factoring ESG criteria into their investment decisions. Proactively participating in the Green Credit Programme can help mitigate legal and reputational risks, particularly where environmental clearance and sustainability standards are becoming stricter.

·      New Avenues for Monetization: Green credits are tradeable assets. This creates a potential revenue stream for infrastructure companies that integrate green practices such as using low-carbon construction materials. Though distinct from carbon credits, green credits may eventually complement India's growing carbon market framework, offering dual benefit potentials.

·      Access to Concessional Finance: Many domestic and international financial institutions are offering lower interest rates for projects with strong sustainability components. The Government of India, through agencies such as Indian Renewable Energy Development Agency Limited(“IREDA”), is increasingly linking concessional credit schemes to environmental performance. Green credits can bolster a project’s green credentials, making it more attractive to such financiers.

Disadvantages and Challenges

While the promise is clear, some challenges remain:

·      Legal enforceability:  Coordination with state-level environmental clearances may pose complexity. Several states run parallel initiatives e.g., Haryana’s “Carbon Farming Program”, Telangana’s “Haritha Nidhi” etc. The GCR credits will sit in a national registry and there remains an ongoing risk of double counting. Ministry of Environment, Forest, and Climate Change(“MoEFCC”) need to harmonize guidelines requiring state agencies to (i) surrender local certificates once a central Green Credit is minted, or (ii) tag them as “retired for compliance”.

·      Detriment to Ecosystem: The scheme aims to identify “degraded lands” which entities can plant trees on. Currently, degraded lands or “wastelands” as classified by the Union government also include extremely important habitats such as scrub forests and grasslands. Here, planting trees could have several negative consequences including impacting the role of these native ecosystems as crucial carbon sinks, as well as affecting the biodiversity in these areas. 

·      Tree-for-tree approach: The scheme employs this approach without considering the cultural importance or ecosystem services provided by forests and land.  No amount of money can be a substitute for the land required for our forests, and for our biodiversity and wildlife to thrive. It will be easier for entrepreneurs and industrialists to acquire forest land by offering, in exchange, money (in the form of green credits), instead of land for land as was the case so far.

How India’s Green Credit Programme Differs from Global Environmental Financing Models

India’s GCP takes inspiration from countries like the USA, EU, and China, but it works differently in some key ways. For example, the USA has strict rules that require companies to use a certain amount of renewable energy, and the EU has a system where companies can buy and sell “pollution permits” under a fixed pollution limit (cap-and-trade system). These systems are strict and market-based.

In China, banks are told to give loans to environment-friendly businesses under the “Green Credit Guidelines”, helping low-pollution and energy-saving projects. China also checks environmental and social risks before giving loans.

India’s approach is more flexible. Instead of strict caps or rules, it uses incentives. Under the GCP, businesses can earn tradable “green credits” by doing eco-friendly work like planting trees or saving energy. India also promotes green finance through tools like green bonds, green loans, and support from government institutions like IREDA. Overall, India’s model is a mix of encouragement, financial support, and market-based tools to promote sustainable development gradually.

Supreme Court Responds Amidst Mounting Concerns

The Legislative Department under the Ministry of Law and Justice had earlier noted that the business-oriented provisions under the GCR may not fully align with the Environment (Protection) Act, 1986. Despite this legal ambiguity, the MoEFCC proceeded with the implementation of the GCR. Concerns around the GCR have now reached the Supreme Court. On March 1, 2025, two environmental advocacy groups filed an intervention application in an existing writ petition seeking a stay on the operation of the GCR. The apex court has since taken cognizance of the matter and has asked the MoEFCC to respond to the issues raised.

A primary concern associated with the afforestation activities under the GCP is the inadequate emphasis on the survival of planted saplings. The methodology prescribed under the GCP does not clearly define the responsibility for the post-plantation care and maintenance of trees planted to earn green credits. Empirical evidence indicates that the survival rates of such plantations range between 6% and 30%, which runs counter to the stated objective of enhancing India’s green cover. Performance audits by the Comptroller and Auditor General of India reveal particularly low survival rates in several states—for instance, only 10% in Madhya Pradesh, 28% in Uttar Pradesh, and 10% in Jammu & Kashmir—under various afforestation initiatives. This lack of accountability has significant implications for the effectiveness of the scheme.

Moreover, the Green Credit Rules permit the plantation of up to 1,100 trees per hectare, even in ecologically sensitive landscapes such as open forests, scrublands, wastelands, and catchment areas, without the support of any site-specific scientific studies. Experts have cautioned that such high-density monoculture plantations may disrupt local ecological balances, reduce biodiversity, and elevate the risk of pest infestations, thereby undermining long-term ecosystem health.

In this context, awarding green credits solely on the basis of plantation activity, without ensuring the survival and ecological appropriateness of such interventions, substantially undermines the purpose for which the green credit scheme was launched, i.e., to increase the green cover in the country.

Conclusion

The Green Credit Rules are a pivotal tool in India's transition towards a sustainable economy. However, their success depends on scientific implementation, robust oversight, and ecosystem sensitivity particularly in ensuring survival and maintenance of green cover. With thoughtful refinement, harmonizing with state initiatives, avoiding monoculture pitfalls and clear accountability, the GCR can become a powerful tool to balance development needs with long-term environmental stewardship and climate resilience.

The Blog has been authored by Shreeji Patel (a V Year B.A. LL.B. student at National Law Institute University, Bhopal) and Vidhi Patel a (III year B.A. LL.B. student at Symbiosis Law School, Nagpur).