NEW DELHI – As India accelerates its journey toward becoming a global industrial powerhouse, its primary mechanism for curbing industrial pollution—the Carbon Credit Trading Scheme (CCTS)—has come under intense scrutiny. A new evaluation by Climate Risk Horizons (CRH), a leading environmental research organization, suggests that the recently notified greenhouse gas (GHG) reduction targets for the country’s most polluting industries are too conservative to trigger the radical technological shifts required to meet national climate goals.
The report characterizes the targets as “modest and unambitious,” warning that the current framework may inadvertently allow major polluters to "pay to pollute" rather than invest in deep decarbonization. With India positioned as the world’s third-largest emitter of greenhouse gases, the efficacy of this market-based mechanism is seen as a litmus test for the country’s pledge to reach Net Zero by 2070.
Main Facts: The Framework and the Critique
Between October 2025 and January 2026, the Government of India officially notified greenhouse gas reduction targets for nine pivotal industrial sectors. These sectors include:
- Cement
- Aluminium
- Iron and Steel
- Paper and Pulp
- Chlor-alkali
- Petroleum Refineries
- Petrochemical Units
- Fertilizers
- Textiles
Under the CCTS framework, these industries are assigned specific "emissions intensity" targets—measured as the amount of CO2 equivalent emitted per unit of production. Companies that surpass these targets earn carbon credits, which can then be sold to underperforming firms. Each credit represents one tonne of carbon dioxide equivalent (tCO2e) reduced beyond the mandated threshold.
However, the CRH analysis contends that these benchmarks are "readily achievable" through minor operational tweaks rather than the systemic overhauls needed for a green transition. The report argues that the cost of non-compliance is so negligible that it fails to provide a financial incentive for companies to abandon carbon-intensive processes, such as coal-fired blast furnaces in steelmaking or clinker production in cement manufacturing.
Chronology: From Pledges to Policy Implementation
The development of India’s carbon market has been a multi-year endeavor, shaped by international pressure and domestic economic priorities:
- August 2022: In an update to its Nationally Determined Contributions (NDCs) under the Paris Agreement, India pledged to reduce the emissions intensity of its GDP by 45% by 2030, compared to 2005 levels.
- COP26 (Glasgow): Prime Minister Narendra Modi announced the "Panchamrit" strategy, committing India to achieving Net-Zero emissions by 2070.
- 2023-2024: The Ministry of Power and the Bureau of Energy Efficiency (BEE) began laying the groundwork for the Carbon Credit Trading Scheme, transitioning from the older "Perform, Achieve, and Trade" (PAT) energy efficiency scheme to a GHG-based market.
- October 2025 – January 2026: The government officially notified the first set of compliance targets for nine sectors for the 2025-2027 period.
- July 2026: Climate Risk Horizons released its evaluation, sparking a national debate on whether the "learning phase" of the carbon market is too lenient.
Supporting Data: The Economics of "Paying to Pollute"
The CRH report provides a granular look at the three sectors with the most significant global environmental footprints: Steel, Aluminium, and Cement.
1. The Steel Sector
India is the world’s second-largest producer of crude steel, with capacity reaching 200 million tonnes in 2024-25 and a target of 300 million tonnes by 2030. Despite its massive footprint, the 255 steel and iron companies under the CCTS are only required to reduce emissions intensity by an average of 6% by 2026-27. Experts argue this can be achieved through "incremental process efficiency" rather than the necessary shift to green hydrogen or electric arc furnaces.
2. The Cement Sector
For the cement industry, the targets are even lower. The average required reduction in emissions intensity is set at a mere 1.89% for 2025-26, rising slightly to 3.22% for 2026-27. Alarmingly, the report notes that several cement plants were excluded from the targets entirely, creating gaps in the regulatory net.
3. The Aluminium Sector
The aluminium industry faces the most stringent requirements among the three, with mandated reductions of 2.3% in 2025-26 and 5.8% in 2026-27. While higher than cement, these targets still fall short of incentivizing the massive investment needed for renewable-based electrolysis.
The Financial Disconnect
The most striking data point in the CRH evaluation involves the cost of compliance. S&P Global estimates that initial carbon credits in India will be priced around $10 per tonne of CO2e. At this price point:
- For major companies in the steel, aluminium, and cement sectors, the cost of purchasing credits to cover a shortfall would amount to only 0.6% to 7% of their annual profits.
- In contrast, the European Union’s Emissions Trading System (ETS) has seen prices fluctuate between $60 and $100 per tonne, a level that forces boardrooms to prioritize green investments over paying fines.
Perspectives: Experts and Official Responses
The critique of the CCTS isn’t just about the numbers; it’s about the "signal" the government is sending to the private sector.
Anirudh T.R., researcher at Climate Risk Horizons and report author:
"For many high-margin polluters, ‘paying to pollute’ could become a preferred business strategy. If the cost of buying credits is a tiny fraction of profits, there is no economic rationale for a CEO to authorize a multi-billion dollar shift to green hydrogen or carbon capture technologies."
Parth Kumar, Programme Manager at the Centre for Science and Environment (CSE):
Kumar, who was not involved in the CRH report, echoed concerns regarding "carbon lock-in." He noted that the current targets are likely limited to driving low-cost operational measures. "The upcoming targets need to put out a strong signaling which could shift the decision making in boardrooms regarding the choice of technologies and investment companies make on upcoming capacity," Kumar explained. He warned that if new factories are built today with old, coal-heavy technology, India will be "locked in" to those emissions for the next 30 to 40 years.
Ashish Fernandes, Director of Climate Risk Horizons:
Fernandes emphasized the need for transparency and independence. "The GHG emission intensity target rules… make a long-overdue start. However, to encourage clean technology deployment, subsequent iterations of the scheme need to set increasingly ambitious targets under an independent governance structure."
While government officials have not released a formal rebuttal to the CRH report, the Ministry of Power has previously defended the gradual approach. Proponents of the current targets argue that a "soft launch" is necessary to allow Indian industries—many of which are small or medium-sized—to stabilize their monitoring and reporting systems before facing punitive carbon pricing that could hurt global competitiveness.
Implications: Risks of Duplication and Governance Gaps
The CRH evaluation highlights several structural risks that could undermine the carbon market’s integrity:
1. The Risk of "Non-Additionality"
India already has a system of Renewable Consumption Obligations (RCO), which mandates that companies source a certain percentage of their energy from non-fossil sources. There is currently no clarity on how the RCO and CCTS will interact. If a company earns a carbon credit for a renewable energy project it was already legally required to build under the RCO, that credit is not "additional." This could lead to a "double counting" of benefits and an oversupply of credits, further crashing the market price.
2. Conflict of Interest in Governance
A significant portion of India’s industrial capacity is held by State-Owned Enterprises (SOEs). The CRH report points out a potential conflict of interest where the government acts as both the regulator and the regulated entity.
- Example: The government-owned Steel Authority of India Limited (SAIL) Bokaro plant has a baseline emissions intensity of 3.21 tCO2e and is tasked with reaching 3.01 tCO2e by 2026-27.
- Comparison: In contrast, the privately operated Tata Steel Kalinganagar plant already operates at a much cleaner 2.49 tCO2e and is being pushed to reach 2.37 tCO2e.
Critics argue that setting "easier" targets for less efficient government plants rewards laggards and penalizes leaders, distorting the market.
3. Weak Penalties
The current framework requires non-compliant companies to pay compensation equal to twice the cost of the credits they failed to purchase. However, if credit prices remain low (near the $10 mark), the penalty remains a "slap on the wrist." Countries like Switzerland, New Zealand, and members of the EU use a flat, high penalty per tonne to ensure that compliance is always the cheaper option.
4. The Path Forward
To rectify these issues, the CRH report recommends:
- Establishing an independent regulator to remove political bias.
- Implementing price floors (a minimum price for carbon credits) to ensure market stability.
- Expanding the scheme to include the power sector, which is the largest source of emissions in India.
- Aligning targets with a 1.5°C pathway rather than just "business-as-usual" improvements.
As India prepares for the 2025-2026 compliance period, the eyes of the international community remain fixed on New Delhi. Whether the Carbon Credit Trading Scheme becomes a transformative tool for industrial renewal or remains a "modest" bureaucratic exercise will likely determine if India can meet its 2070 Net-Zero promise without sacrificing its economic momentum.
