India’s carbon market gains traction

India has recently told the Carbon Credit Trading Scheme (CCTS) to reduce, remove, or avoid greenhouse gas emissions in the Indian economy by pricing such emissions through the trading of Carbon Credit Certificates (CCCs).

The Minister of State in the Ministry of Power, Shripad Naik, recently told the Indian Parliament that the government has announced various steps to operationalise the Indian Carbon Market (ICM), including the setting up of the requisite institutional framework, notification of Greenhouse Gas Emission Intensity (GEI) targets for seven energy-intensive sectors under the compliance mechanism. Further, approved methodologies under the offset mechanism, a strong monitoring system, a reporting and verification framework and procedures for accreditation of carbon verification agencies have all been put in place, Nail said.

As part of the ICM, industries, as obligated entities, are supposed to cut emissions by enhancing efficiency and adopting low-carbon technologies. Entities that over-achieve their notified Greenhouse Gas Emission Intensity (GEI) targets are eligible for issuance of CCC, which are tradable through power exchanges. Non-obligated entities, such as renewable energy producers may voluntarily register approved mitigation activities in order to seek issuance of CCC.

The financial support to put into practice the CCTS will be offered by the Bureau of Energy Efficiency from the fees and charges collected from entities under the scheme and its own resources. The Central Electricity Regulatory Commission of India will extend the regulatory support necessary for trading activities under the Indian Carbon Market, including matters relating to the trading of carbon credit certificates.

The institutional setup to oversee the implementation of the scheme constitutes the National Steering Committee, co-chaired by the Secretaries of the Ministry of Power and the Ministry of Environment, Forest and Climate Change, with Grid Controller of India Limited functioning as the Registry and the Bureau of Energy Efficiency serving as the Administrator.

Impact on cement and aluminium industries

A report published by ICRA ESG Ratings on April 22 assesses India’s CCTS, examining near-term compliance and financial implications for hard-to-abate sectors, with a focus on the cement and aluminium industries. It says that CCTS is calibrated as a transition signalling mechanism rather than an immediate financial burden, particularly in the initial compliance years.

The report evaluates how sector-specific emission intensity targets for FY2026–FY2027 translate into emission gaps, carbon credit requirements and financial impacts under multiple scenarios and pricing assumptions. The analysis is conducted among 14 hard-to-abate companies (ten cement and four aluminium) covered under the CCTS notification. 

ICRA says that while near-term carbon costs remain absorbable, continued reliance on credit purchases could result in escalation of production costs. Importantly, the scheme already differentiates companies based on their emission intensity trajectories rather than scale alone, rewarding early movers that invest in clinker factor reduction, blended cement, alternative fuels, waste heat recovery, renewable power, and other process optimisations.

ICRA ESG’s scenario analysis of the cement and aluminium sectors indicates that companies delivering consistent GHG emission intensity (GEI) reductions tend to generate surplus credits, while entities with no improvement or rising intensity profiles continue to face emission deficits, particularly under higher production growth scenarios. On average, emission deficits (mn tCO₂e) in rising GEI scenarios for cement are estimated at 0.5 in FY2026, widening to about 1.3 in FY2027, while aluminium gaps increase from approximately 0.5 to 1.4 over the same period.  Maintaining the current GEI levels, the cement and aluminium sector companies would result in a deficit across all production growth scenarios and resulting in recurring carbon‑credit requirements, particularly for larger, higher‑intensity producers, ICRA said.

The report suggests that at the assumed carbon price of $10/tCO2e, the carbon cost impact on profitability varies widely across entities. For cement players, the adverse impact on profitability could reach up to 19% for certain companies in the cement sector during FY2027, and 3% for the aluminium sector in FY2027 as the gaps widen in the subsequent year. The research also identifies probable break even emission intensity thresholds. On break even analysis, ICRA ESG has noted that about 0.7% GEI decline in FY2026 and about 2.7% decline in FY2027 for the cement sector; approximately 1.6% decline (FY2026) and around 5.2% decline (FY2027) in the aluminium sector, over the baseline in FY2024 would result in break even with respective targets on a cumulative basis. Achieving these levels materially reduces carbon credit dependence and moderates compliance risk, ICRA says.

Sheetal Sharad, chief rating officer, says that the rollout of CCTS marks a structural shift in India’s climate policy architecture. Sharad adds that while initial compliance costs are manageable, the scheme is already sending a strong economic signal that companies that accelerate emission intensity reductions will be better positioned to contain risks and potentially unlock value as the carbon market matures.

Sharad further argues that moderate but timely emission intensity improvements can cut exposure to a large extent, whereas delayed action could result in pounding costs as targets tighten. This makes the early years of CCTS critical when it comes to strategic planning, Sharad says.