India’s vulnerability to climate change, exhibited through intensifying heat waves, coastal risks, and agricultural susceptibility, disproportionately distresses marginalised communities and economically disadvantaged populations. Recognising the accelerating global imperative for climate change adaptation and mitigation, India has launched the Indian Carbon Market (ICM) as a noteworthy policy initiative to realise its updated Nationally Determined Contributions (NDCs). The ICM symbolises a paradigm shift compared to prevailing Indian market-based initiatives, such as the Perform, Achieve, and Trade (PAT) scheme and Renewable Energy Certificates (REC) mechanism, which were positioned towards energy efficiency improvement and renewable energy deployment, respectively. The ICM, as an Emissions Trading System (ETS), steers emission intensity reduction coupled with NDCs. This study proposes a policy framework for integrating carbon prices from the ICM into the economic dispatch of thermal power plants in India. This research applies a Carbon Footprint-based Economic Dispatch Model (CF-EDM), built upon state-of-the-art established methodologies and incorporating carbon price scenarios to determine Carbon-Adjusted Energy Charge Rates (CA-ECR). The CF-EDM simulation results indicate that carbon pricing prioritises gas-based power generation over coal and enhances the economic competitiveness of less emission-intensive coal-fired power plants. Furthering critical analysis of ICM policy, we recommend establishing a benchmarked emission intensity trajectory to provide clear long-term investment visibility, creating market stability reserves to manage carbon price volatility, and implementing a robust market monitoring mechanism within the ICM. The proposed policy framework and recommendations are crucial for efficient and transparent ICM, guiding sustainable decarbonisation of the Indian power sector.