India’s proposed Carbon Credit Trading Scheme will not deliver transformational industrial decarbonisation, experts warn.
New report shows far more ambitious emissions intensity targets needed.
Current rules demand only 2–5% cuts by 2026-27 for steel, cement and aluminium.
The scheme relies on low carbon prices and weak governance, excludes the power sector.
India's proposed Carbon Credit Trading Scheme (CCTS) is unlikely to drive transformational change in industrial decarbonisation unless the emissions intensity targets linked with it become significantly more ambitious, according to a new analysis by Bengaluru-based think tank Climate Risk Horizons.
The authors of the report, Unlocking Ambition for India's Carbon Credit Trading Scheme, evaluated the new draft Greenhouse Gas Emission Intensity Target Rules for the iron and steel, cement and aluminium sectors issued on June 26, 2026. They found that the required emissions intensity reductions under the scheme are modest and readily achievable through incremental process improvements rather than transformational change.
They also raised concerns over low expected carbon credit prices, the exclusion of the power sector from mandatory compliance and governance risks related to competitive neutrality.
The CCTS forms the basis of India's upcoming carbon market. Unlike cap-based emissions trading systems that limit total emissions, it focuses on emissions per unit of production. Under the scheme, companies that reduce emissions beyond their assigned targets earn carbon credits, while those falling short can purchase credits from the market to meet their obligations. The report noted that this intensity-based approach is aligned with India's status as an emerging economy and its social development goals, although absolute emissions could continue to increase as production grows.
According to the analysis, the assigned emissions intensity reductions are too low to encourage investment in technologies that deliver deeper decarbonisation. It noted that major steel and cement companies need to achieve only 2-5 per cent reductions by 2026-27, creating little pressure for transformation.
The analysts also pointed out that the financial consequences of missing targets are likely to remain weak in the initial years. They estimated that carbon credits in India could initially be priced at around $10 (around Rs 955) per tonne of carbon dioxide equivalent. Compared with several international emissions trading systems, this would make India's initial carbon price relatively low.
"The financial impact of buying carbon credits to offset shortfalls is currently small, between 0.6 per cent and 7 per cent of the annual profit for large companies across the aluminium, cement and steel sectors, based on the expected initial carbon price being $10 per tonne of CO2. For many high-margin polluters, “paying to pollute” could become a preferred business strategy,” said Anirudh TR, author of the report.
Another major concern identified in the report is the exclusion of the power sector from mandatory targets. The sector is India's single largest source of greenhouse gas emissions, accounting for about 55 per cent of the total, but is instead part of the voluntary compliance mechanism. The report says such exclusion significantly reduces the impact of the scheme and recommends that the power sector be included in subsequent iterations.
The analysis also pointed to governance challenges. The government, the authors said, acts as both regulator and operator across many of the sectors covered by the scheme, creating risks to competitive neutrality. They recommended establishing an independent regulatory framework, introducing reserve price floors and stability reserves in line with international best practice, and harmonising the CCTS with overlapping initiatives such as the Renewable Consumption Obligation.