New Delhi — As India strides toward its ambitious goal of reaching net-zero emissions by 2070, a cornerstone of its strategy—the domestic carbon market—is facing intense scrutiny. A new evaluation of the greenhouse gas (GHG) reduction targets set for the nation’s heaviest industries suggests that the current framework may be too lenient to spark the technological revolution required for a green transition.
The report, released by the research organization Climate Risk Horizons (CRH), characterizes the recently notified targets as "modest and unambitious." The analysis warns that the current structure allows major polluters to meet their obligations through incremental efficiency gains rather than the systemic operational shifts needed to meet India’s international climate pledges.
Main Facts: The Architecture of India’s Carbon Credit Trading Scheme (CCTS)
Between October 2025 and January 2026, the Indian government notified specific GHG reduction targets for nine key industrial sectors. These sectors form the backbone of the Indian economy but are also its primary sources of industrial pollution. The covered industries include:
- Cement
- Aluminium
- Iron and Steel
- Paper and Pulp
- Chlor-alkali
- Petroleum Refineries
- Petrochemical Units
- Fertilisers
- Textiles
Under the Carbon Credit Trading Scheme (CCTS), these industries are assigned "emissions intensity" targets—measured as the amount of CO2 equivalent emitted per unit of production. Companies that exceed these targets earn carbon credits, which can be sold on a domestic market. Conversely, those that fail to meet the benchmarks must purchase credits to offset their excess emissions.
However, the CRH evaluation argues that these targets are "readily achievable" within the current two-year compliance period. The central criticism is that the benchmarks are set so close to "business-as-usual" levels that they fail to provide the financial or regulatory "stick" necessary to force industries away from coal-dependent processes.
Chronology: From Pledges to Implementation
India’s journey toward a regulated carbon market has been a multi-year progression, marked by shifting international pressures and domestic economic priorities.
- August 2022: India updated its Nationally Determined Contributions (NDCs) under the Paris Agreement, pledging to reduce its GHG emissions intensity by 45% by 2030 compared to 2005 levels.
- December 2022: The Energy Conservation (Amendment) Bill was passed by Parliament, providing the legal framework for the establishment of a domestic carbon market.
- June 2023: The Ministry of Power formally notified the Carbon Credit Trading Scheme, 2023, outlining the governance structure involving the Bureau of Energy Efficiency (BEE) and the Central Electricity Regulatory Commission (CERC).
- October 2025 – January 2026: The government issued specific sector-wise GHG reduction targets for the first compliance cycle, sparking the current wave of critical analysis.
This timeline reflects a rapid transition from voluntary energy efficiency schemes (like the old Perform, Achieve, and Trade or PAT scheme) to a more formal carbon market. Yet, experts argue the "DNA" of the old energy-saving schemes—which focused on marginal efficiency rather than absolute carbon reduction—has been carried over into the new carbon framework.
Supporting Data: The High Cost of Low Ambition
The CRH report provides a granular look at why the current targets are unlikely to drive deep decarbonization. The analysis focuses on three "hard-to-abate" sectors: steel, cement, and aluminium.
1. The Steel Sector: Second Largest Globally, But Growing Greener?
India’s iron and steel sector is the world’s second-largest and is currently expanding at a rate of 6.8% annually. The government aims for a crude steel capacity of 300 million tonnes by 2030. According to the CRH analysis, the 255 steel companies covered by the scheme are required to reduce emissions intensity by only 6% by 2026-27.
Critics argue this 6% reduction can be achieved through "incremental improvements" in existing coal-fired blast furnaces, rather than switching to green hydrogen or electric arc furnaces powered by renewables.
2. The Cement and Aluminium Benchmarks
For the cement sector, the mandated reduction is even lower: an average of 1.89% by 2025-26, rising slightly to 3.22% the following year. In the aluminium sector, which faces the most stringent requirements, the targets are 2.3% and 5.8% for the respective years.
3. The "Pay to Pollute" Economics
Perhaps the most damning data point in the CRH report concerns the cost of non-compliance. S&P Global estimates that initial carbon credits in India will be priced around $10 per tonne of CO2 equivalent.
For major companies in the steel, aluminium, and cement sectors, the cost of purchasing these credits to cover emissions gaps would amount to a mere 0.6% to 7% of their annual profits.
"For many high-margin polluters, ‘paying to pollute’ could become a preferred business strategy," noted Anirudh T.R., one of the report’s authors. When the cost of compliance is a fraction of a percent of profit, there is little financial incentive to invest billions in nascent technologies like Carbon Capture and Storage (CCS).
Official Responses and Expert Perspectives
While the government maintains that a gradual phase-in is necessary to protect industrial growth and prevent "carbon leakage" (where industries move to less-regulated countries), environmental experts see a missed opportunity.
Parth Kumar, Programme Manager at the Centre for Science and Environment (CSE), who was not involved in the CRH report, emphasized the danger of "technology lock-in."
"The upcoming targets need to put out a strong signaling which could shift the decision-making in boardrooms regarding the choice of technologies," Kumar explained. He warned that if companies invest in traditional coal-based capacity now because the carbon targets are easy to meet, India will be "locked in" to high emissions for the next 30 to 40 years—the typical lifespan of an industrial plant.
The Governance Gap
The CRH analysis also highlights a significant conflict of interest in the current governance model. The Indian government is tasked with setting targets for and regulating its own Public Sector Undertakings (PSUs).
A case study cited in the report compares the government-owned Steel Authority of India Limited (SAIL) Bokaro plant with the privately operated Tata Steel Kalinganagar plant.
- SAIL Bokaro: Operates at an intensity of 3.21 tCO2e and is asked to reach 3.01 by 2026-27.
- Tata Steel Kalinganagar: Already operates at a much cleaner 2.49 tCO2e and is tasked with reaching 2.37.
By setting baselines based on a plant’s current performance rather than a sector-wide best-practice standard, the framework effectively "rewards" less efficient plants with easier targets, while penalizing early adopters of green technology.
Implications: The Risk of a Distorted Market
The consequences of "modest" targets extend beyond missed climate goals; they threaten the very viability of the carbon market itself.
1. Market Oversupply and Price Collapse
If targets are too easy to achieve, the market will be flooded with excess carbon credits. A massive oversupply will lead to a collapse in credit prices—a phenomenon already seen in several international carbon markets during their infancy. If prices drop too low, the "punitive" measure of paying twice the credit price for non-compliance becomes a negligible expense.
2. Duplication and Additionality
India already has a Renewable Consumption Obligation (RCO) system, which mandates that companies use a certain percentage of renewable energy. The CRH report warns that there is currently no clarity on how the RCO and CCTS will interact. If a company earns a carbon credit for a reduction it was already legally required to make under the RCO, it violates the principle of "additionality"—a core requirement for any credible carbon market.
3. International Competitiveness
As the European Union moves forward with its Carbon Border Adjustment Mechanism (CBAM), which imposes taxes on carbon-intensive imports, India’s domestic market must be robust and high-priced to be recognized as a valid equivalent. An "unambitious" domestic market could leave Indian exporters vulnerable to heavy taxes when selling to Europe.
Recommendations for Reform
To rectify these issues, Climate Risk Horizons and other experts recommend:
- Independent Regulation: Moving oversight to a body independent of the ministries that manage the regulated industries.
- Price Floors: Implementing a minimum price for carbon credits to ensure they remain a meaningful financial deterrent.
- Inclusion of the Power Sector: Bringing the electricity generation sector—India’s largest emitter—into the market to increase liquidity and impact.
- International Alignment: Adopting a flat penalty per tonne of CO2, similar to the models used in the EU, China, and New Zealand, rather than a penalty linked to fluctuating market prices.
"The GHG emission intensity target rules… make a long-overdue start," concluded Ashish Fernandes, Director of Climate Risk Horizons. "However, to encourage clean technology deployment, subsequent iterations of the scheme need to set increasingly ambitious targets in a transparent manner."
As India prepares for the 2025-2026 compliance cycle, the message from the research community is clear: the current "soft launch" of the carbon market may protect short-term industrial profits, but it risks derailing the nation’s long-term journey toward a net-zero future.
