Carbon costs for cement and aluminium to rise as India's new climate rules tighten by FY2027: ICRA ESG

India's Carbon Credit Trading Scheme (CCTS) has entered its first compliance phase for seven energy-intensive sectors, with cement and aluminium facing bindi...

What Happened

India's Carbon Credit Trading Scheme (CCTS) has entered its first compliance phase for seven energy-intensive sectors, with cement and aluminium facing binding emissions intensity reduction targets for FY2026 and FY2027, increasing their effective carbon costs.
Reduction targets for cement are set at 4.7%–7.6% and for aluminium at 2.8%–7.06% in emissions intensity (GHG per unit of output), using FY2024 as the baseline.
Approximately 490 industrial units across seven sectors — aluminium, cement, chlor-alkali, pulp and paper, petroleum refining, petrochemicals, and textiles — now have legally binding compliance obligations.
The CCTS is expected to cover over 700 million tonnes of CO2 equivalent, making it one of the world's largest emissions trading systems at full scale; first official trading of Carbon Credit Certificates (CCCs) is expected by mid-to-late 2026.
The scheme marks a transition from the voluntary energy-efficiency-based Perform, Achieve and Trade (PAT) scheme, which operated since 2012, to a direct greenhouse gas emissions intensity framework.

Static Topic Bridges

Carbon Credit Trading Scheme (CCTS) — Legal Framework and Architecture

The CCTS is India's domestic emissions trading mechanism, established under the authority of the Energy Conservation (Amendment) Act, 2022, specifically Section 14(w), which empowers the Central Government to specify a carbon credit trading scheme. The scheme was officially notified in June 2023. It operates on an emissions intensity (GHG per unit of production) basis rather than absolute caps, making it consistent with India's Nationally Determined Contributions (NDC) under the Paris Agreement.

The Bureau of Energy Efficiency (BEE), under the Ministry of Power, is the administrator of the CCTS.
The Ministry of Environment, Forest and Climate Change (MoEFCC) notifies the emission intensity targets for each sector.
The Grid Controller of India manages the carbon credit registry; trading occurs on power exchanges regulated by CERC.
A National Steering Committee for the Indian Carbon Market (NSCICM), co-chaired by the Ministries of Power and Environment, provides overall governance.
Each Carbon Credit Certificate (CCC) represents one tonne of CO2 equivalent (tCO2e) reduced or removed.

Connection to this news: The activation of binding compliance targets for cement and aluminium for FY2026–27 is the first real test of the CCTS compliance mechanism, directly translating India's climate commitments into industrial costs and investment signals.

Perform, Achieve and Trade (PAT) Scheme — Predecessor to CCTS

The PAT Scheme, launched under the National Mission for Enhanced Energy Efficiency (NMEEE), was India's first market-based mechanism for energy efficiency in industry. Under PAT, Designated Consumers (DCs) were given specific energy consumption (SEC) reduction targets; those who over-achieved received tradeable Energy Saving Certificates (ESCerts), while under-achievers had to buy them. Eight PAT cycles were conducted, demonstrating the institutional capacity for industrial target-setting and market trading.

NMEEE is one of the eight missions under the National Action Plan on Climate Change (NAPCC), launched in 2008.
PAT covered 13 energy-intensive sectors including thermal power, iron and steel, cement, aluminium, textiles, and fertilisers.
The transition from PAT (energy efficiency metric) to CCTS (GHG emissions intensity metric) represents a qualitative upgrade, aligning India's industrial regulation more closely with international carbon pricing norms.

Connection to this news: The CCTS explicitly builds on PAT's institutional infrastructure. Industries already in the PAT scheme are being transitioned to CCTS, making legacy knowledge critical but also highlighting the shift in the underlying metric from energy to direct emissions.

India's Climate Commitments — NDC and Paris Agreement

India ratified the Paris Agreement in 2016. Its updated NDC (submitted in 2022) includes commitments to reduce the emissions intensity of GDP by 45% by 2030 compared to 2005 levels, and achieve about 50% of cumulative electric power installed capacity from non-fossil fuel based energy resources by 2030.

Emissions trading schemes are recognised under Article 6 of the Paris Agreement, which allows cooperative approaches including market mechanisms between countries.
India's domestic CCTS is a unilateral compliance mechanism (not an Article 6 mechanism) but signals readiness for future international carbon market linkages.
The nine identified CCTS sectors (aluminium, cement, steel, paper, chlor-alkali, fertiliser, refinery, petrochemicals, textile) together account for the bulk of India's industrial GHG emissions.
Heavy industry sectors like cement and aluminium are considered "hard-to-abate" due to process emissions (e.g., calcination in cement manufacturing releases CO2 as an inherent chemical reaction).

Connection to this news: The CCTS compliance obligations directly operationalise India's NDC targets at the sectoral level, translating a national climate commitment into firm industrial regulation for the first time.

Key Facts & Data

Legal basis: Section 14(w) of the Energy Conservation (Amendment) Act, 2022
CCTS officially notified: June 2023
Administrator: Bureau of Energy Efficiency (BEE), Ministry of Power
Registry manager: Grid Controller of India
Compliance baseline year: FY2024
Cement reduction target: 4.7%–7.6% emissions intensity (FY2026–27)
Aluminium reduction target: 2.8%–7.06% emissions intensity (FY2026–27)
Covered entities: ~490 units across 7 sectors (Phase 1)
Expected coverage: >700 million tCO2e (at full scale)
First CCC trading expected: mid-to-late 2026
Predecessor scheme: PAT (Perform, Achieve and Trade), launched 2012