India sets first-ever GHG emission intensity targets under the Carbon Credit Trading Scheme (CCTS) as a significant step in the right direction. Years of planning to operationalize a domestic compliance carbon market—a system intended to encourage emission reductions across high-emitting industrial sectors—have culminated in this milestone. The Perform, Achieve, and Trade (PAT) energy-efficiency program, which already encompassed more than 1,000 units across 13 sectors, was expanded by the Energy Conservation (Amendment) Act of 2022, which gave the government the authority to establish a national carbon market. After the Union Ministry of Power notified the CCTS on June 28, 2023, the Bureau of Energy Efficiency (BEE) released comprehensive regulations in July 2024. India’s offset mechanism was made available under the plan. Facilities in four high-emission sectors must fulfill particular targets for 2025–2026 and 2026–2027, using 2023–2024 as the baseline, according to the draft GHG Emission Intensity Target Rules, 2025, released by the Union Ministry of Environment, Forests, and Climate Change (MoEF&CC) on April 16, 2025. The organization, goals, and difficulties of this innovative project are examined in this article.
Targets and Coverage: A Sectoral Analysis
282 facilities in four high-emission sectors—aluminum (13 entities), Cement (186 entities), chlor-alkali (30 entities), and pulp & paper (53 entities)—are covered by the draft GHG Emission Intensity Target Rules, 2025. These sectors must meet obligatory emission intensity limits for two compliance years, 2025–2026 and 2026–2027. The reductions will be split around 40% in the first year and 60% in the second. The CCTS uses an intensity-based “baseline-and-credit” methodology, with the baseline GHG intensity for each facility for 2023–2024 (measured in tonnes of CO₂ equivalent per tonne of product/output). Carbon credits, which are estimated as environmental compensation at twice the average credit price, are awarded to facilities that emit less than their target. At the same time, those who exceed it are required to acquire credits or pay fines.
Sector-specific targets differ, reflecting a benchmarking strategy that imposes more aggressive reductions on organizations with higher baseline intensities. The aims provide for minor cuts of 2-3% on average in 2025–2026 and 3.3–7.5% in 2026–2027. For example, the cement industry, which accounts for 6% of India’s industrial CO₂ emissions, has a two-year average reduction target of 3.4%, with ordinary Portland cement (OPC) and pozzolana Portland cement (PPC) units achieving ranges of 0.85% to 7.6%. The aluminium industry, which accounts for 2% of emissions, must reduce them by 5.85%. In contrast, the pulp, paper, and chlor-alkali sectors, each contributing less than 1%, must make more drastic cuts of 7.54% and 7.15%, respectively. Due to their involvement in PAT Cycle VIII, certain entities are notably excluded from goals in the first year, indicating possible overlaps between schemes.
Ambition Compared to PAT: A Gradual Escalation
To evaluate the ambition of the CCTS aims, the Centre for Science and Environment (CSE) compared them to the PAT plan. Emission intensity reductions were less strict under PAT Cycle I (2012–15) and PAT Cycle VII (2022–25), which lasted three years, than under the CCTS. For instance, Cement’s 3.4% CCTS aim is marginally more aggressive than its 4.9% PAT I and 3.7% PAT VII reduction targets. While the chlor-alkali and pulp & paper sectors experience more substantial gains, exceeding their PAT benchmarks by notable percentages, aluminum’s 5.85% reduction under CCTS surpasses its PAT I (5.8%) and PAT VII (4.3%) standards.
A strategy of cautious pragmatism is suggested by this phased approach, which begins with small cuts and increases in the second year. The government encourages industries to embrace low-carbon energy sources and energy-efficient technologies to balance industrial adaptability and climate goals. Nonetheless, there are apparent intra-sectoral differences. The most aggressive targets, up to 15% over two years, are for pulp and paper, probably due to the industry’s projected ability to reduce emissions and its lower carbon footprint. Chlor-alkali is subject to strict targets, which suggests that front-loading cutbacks in smaller-emitting sectors are the primary focus.
Challenges in Carbon Pricing and Market Design
The carbon price, which is impacted by the strictness of emission objectives, is the key to a booming carbon market. The Indian Carbon Market: Pathway Towards an Effective Mechanism, a report published by CSE, highlighted the necessity of setting high goals to promote significant decarbonization. Even if the CCTS targets are stricter than PAT, they could not be enough to provide a strong carbon price. Essential components of market design will also be necessary. Setting a floor price is critical to preventing the collapse of the credit value, but it might not be easy to decide on a suitable amount in India’s emerging market. Furthermore, controlling offset credit inflows is critical because excessive supply could drive down prices.
Market stability mechanisms are required to control volatility; however, obtaining funding and evaluating expenses present challenges. A solid monitoring, reporting, and verification (MRV) structure is crucial, requiring knowledgeable verifiers, comprehensive data integrity checks, and pricing. The Central Pollution Control Board, which currently enforces non-compliance penalties, must impose harsher penalties than PAT did. The electricity sector’s exclusion restricts the market’s reach, and smaller businesses may face financial and technological obstacles. The necessity for aligned MRV frameworks is highlighted by overlapping disclosure obligations, such as those from the carbon border adjustment mechanism, making compliance even more difficult.
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The Road Ahead: Balancing Ambition and Feasibility
An important turning point was when India sets its first-ever GHG emission intensity targets under the CCTS. Although the targets are an improvement over PAT, it is unclear until trading starts if they will be able to generate a significant carbon price. The scheme’s success will depend on how well it handles market design issues like setting a floor price, controlling offsets, and guaranteeing a strong MRV. Industry compliance also requires sectoral roadmaps, enabling regulations, and financial and technical assistance, especially for smaller organizations with more challenging goals. The CCTS has the potential to help India meet its national climate goals as it moves through this transition. Still, its success will depend on balancing ambition and viability in a fast-changing economic landscape.
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