India's carbon trading effects

India’s carbon market has moved from policy to compliance, and heavy industry is starting to price emissions into plant-level decisions. (economictimes.indiatimes.com) India notified the Carbon Credit Trading Scheme on June 28, 2023, after amending the Energy Conservation Act in 2022 to create a domestic carbon market. The scheme uses a compliance system for obligated industrial entities and an offset system for voluntary participants. (pib.gov.in 1) (pib.gov.in 2) In plain terms, the system sets an emissions-intensity target for a factory, compares actual performance with that benchmark, and then requires underperformers to buy carbon credit certificates while allowing better performers to bank or sell them. The Bureau of Energy Efficiency’s July 2024 compliance procedure lays out the target-setting, monitoring, verification, trading and banking rules. (beeindia.gov.in) The government first moved designated consumers from the older Perform, Achieve and Trade system toward the new carbon market in late 2024. By January 13, 2026, it had expanded notified greenhouse-gas emission-intensity targets to petroleum refineries, petrochemicals, textiles and secondary aluminium, bringing total covered entities to 490. (pib.gov.in 1) (pib.gov.in 2) That shift matters for cement and aluminium because both sectors are energy-intensive, but they do not face the same room for near-term cuts. ICRA ESG Ratings said on April 22 that aluminium producers are better placed than cement makers to meet early targets and contain compliance costs. (economictimes.indiatimes.com) (business-standard.com) ICRA’s review covered 14 companies and found that keeping current emission intensity unchanged would still leave both sectors short of their targets under different production scenarios. The gap is expected to widen by fiscal 2027, increasing recurring demand for credits, especially for larger producers. (economictimes.indiatimes.com) (webindia123.com) Cement looks more exposed because process emissions from limestone are harder to eliminate than fuel-related emissions, and ICRA said sector profitability could fall by as much as 19% by fiscal 2027 if companies do not cut emissions or secure enough credits. The same report pointed to blended cement, alternative fuels and renewable power as the main levers for limiting that hit. (business-standard.com) (pib.gov.in) Aluminium producers still face tightening targets, but the sector has more scope to lower emissions through cleaner electricity, efficiency gains and process upgrades. That gives smelters a better chance to avoid buying credits in the early years if they invest fast enough. (economictimes.indiatimes.com) (pib.gov.in) The larger policy goal is to make carbon a line item in industrial capital spending before India’s 2030 climate deadlines arrive. The Bureau of Energy Efficiency says the Indian Carbon Market is meant to price greenhouse-gas emissions across major sectors while lowering the overall cost of cutting them through trading. (beeindia.gov.in 1) (beeindia.gov.in 2) For now, the scheme is not forcing a sudden cost shock across industry. It is forcing companies to decide whether to keep buying credits every year or spend now on cleaner kilns, power contracts and plant upgrades. (economictimes.indiatimes.com)