India sets first-ever GHG emission intensity targets under CCTS

India has been preparing to operationalise its first domestic compliance carbon market over recent years. The Energy Conservation (Amendment) Act, 2022 empowered the government to establish a national carbon market. Building on the PAT (Perform, Achieve and Trade) energy-efficiency scheme — which covered over 1,000 units across 13 sectors — the Union Ministry of Power notified the Carbon Credit Trading Scheme (CCTS) on June 28, 2023. 

In July 2024, the Bureau of Energy Efficiency (BEE) published detailed regulations for the planned compliance market, followed by the release of details on India’s offset mechanism under the CCTS.

On April 16, 2025, the Union Ministry of Environment, Forest and Climate Change (MoEF&CC) issued a draft of the Greenhouse Gas (GHG) Emission Intensity Target Rules, 2025 under the CCTS. This draft mandates that facilities in four high-emission sectors meet GHG emission intensity targets for 2025-26 and 2026-27, using 2023-24 as the baseline.

The CCTS establishes an intensity-based “baseline-and-credit” system. Each covered facility has a baseline GHG intensity (tonnes of carbon dioxide or CO₂ equivalent per tonne of product/output) for 2023-24. For each compliance year, lower intensity targets are set. Facilities emitting below their target will earn carbon credits; those exceeding their targets must either purchase credits or pay penalties (calculated as environmental compensation at twice the average credit price).

These targets were developed through extensive stakeholder consultations and technical reviews to ensure they are both scientifically robust and technically implementable, taking into account available technologies and abatement costs, the BEE claimed. These sectoral targets represent India’s first binding industrial CO₂ emission intensity benchmarks and are intended to support national climate commitments.

What do the coverage and targets look like?

Under the draft rules, 282 plants across four sectors are subject to mandatory targets for two years (2025-2026 and 2026-2027), with reductions roughly distributed as 40 per cent in the first year and 60 per cent in the second. The covered sectors and entities include aluminium (13 entities), cement (186 entities), chlor-alkali (30 entities) and pulp & paper (53 entities).

Targets are assigned through a benchmarking approach, meaning entities with higher baseline intensities are given more ambitious reduction targets than those with lower baselines.

Delhi-based think tank Centre for Science and Environment (CSE) compared these new carbon intensity reduction targets to those under PAT Cycle I and the latest PAT Cycle VII — both of which had three-year targets — to assess the relative ambition of the new CCTS framework, which operates with annual targets. 

The key findings are presented in the table.

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The data show a phased structure; in 2025-26, the targets require relatively modest reductions — averaging roughly 2-3 per cent — which increase to more ambitious cuts of 3.3-7.5 per cent in 2026-27. This approach suggests the government is seeking to balance industrial adaptability with escalating climate ambitions.

However, the data also uncovered significant intra-sectoral variations. In cement, targets range from 4.7 per cent to 7.6 per cent for ordinary Portland cement (OPC) and pozzolana Portland cement (PPC) units; in aluminium, from 2.8 per cent to 7.06 per cent; pulp & paper targets reach up to 15 per cent over two years; and chlor-alkali ranges from 3.3 per cent to 11 per cent. Several entities have no targets for the first compliance year, likely due to their concurrent participation in PAT Cycle VIII, which overlaps with the first CCTS compliance year.

The table also reveals that the initial CCTS emission intensity targets vary in ambition across sectors, both in comparison to one another and relative to previous PAT cycles. Cement, which accounts for around 6 per cent of India’s industrial CO₂ emissions, faces a modest average reduction target of 3.4 per cent over two years (for OPC and PPC units) — the least ambitious among the four sectors. This is only slightly more ambitious than the 4.9 per cent reduction achieved under PAT I (2012-15) and the 3.7 per cent target under PAT VII (2022-25).

By contrast, the aluminium sector (which contributes approximately 2 per cent of national emissions) is expected to achieve a 5.85 per cent reduction over two years. This marginally exceeds its three-year PAT I (5.8 per cent) and PAT VII (4.3 per cent) targets and indicates greater ambition under the CCTS compared to the cement sector.

More stringent cuts are observed in the other two sectors, which each contribute less than 1 per cent to industrial emissions: The chlor-alkali sector must reduce emission intensity by 7.54 per cent, while the pulp and paper sector faces a 7.15 per cent cut over two years. These targets surpass their respective PAT I reductions (6.04 per cent for chlor-alkali and 5.22 per cent for pulp and paper) and significantly exceed the targets set under PAT VII (<4 per cent). 

Notably, the pulp and paper sector’s CCTS targets exceed both its own historical PAT benchmarks and those set for aluminium and cement, while chlor-alkali faces the most stringent CCTS targets of the four sectors. This likely reflects a strategy of front-loading deeper cuts in sectors with relatively smaller emissions — on the premise that such reductions are more readily achievable.

The draft notification suggests a narrative of cautious pragmatism. The government has opted for relatively modest targets in the first compliance year — likely to avoid sudden cost escalations — while signalling a steeper reduction trajectory thereafter. By mandating gradual cuts that increase in the second year, the framework appears designed to encourage industries to adopt energy-efficiency measures, shift to lower-carbon energy sources and invest in technological upgrades.

Carbon price, targets and market challenges ahead

A key indicator of a successful carbon market is the price of carbon it generates — largely determined by the stringency of emission targets imposed on obligated entities. CSE’s report The Indian Carbon Market: Pathway Towards an Effective Mechanism, advocated for more ambitious targets than those seen under PAT, as these help drive carbon prices high enough to spur meaningful decarbonisation.

Targets must also strike the right balance between supply and demand, which is key to price determination. In this context, the MoEF&CC’s announcement of sectoral targets marks an essential step towards establishing a credible carbon price for the emerging Indian market. However, several other market design features will also influence pricing — and pose challenges.

One such element is the establishment of a sufficiently high floor price to prevent credit values from collapsing in unfavourable market conditions. Determining an appropriate floor price in the context of India’s evolving market is a complex task. Another factor is the management of offset credit inflows. Under the current eligibility framework, offset supply could be high — but demand adequacy remains uncertain.

A market stability mechanism will also be important for managing volatility by enabling the injection or withdrawal of credits when needed. The challenge here lies in estimating the associated costs and securing sustainable funding.

Beyond these pricing issues, other aspects of market design and implementation could affect price signals directly or indirectly. A robust monitoring, reporting and verification framework is essential — requiring a skilled pool of verifiers and strong data integrity safeguards, particularly as new verifiers enter the market. Penalties for non-compliance, now to be enforced by the Central Pollution Control Board, must be stronger and better implemented than under PAT.

Excluding the power sector from the scheme limits the market’s scope and liquidity. Meanwhile, industry readiness remains a concern: Smaller high-emission entities facing steeper targets may encounter technological, financial and capacity-related barriers. Furthermore, the government has yet to release official emission reduction pathways for the four sectors.

To support compliance, enabling policies, sectoral roadmaps and technical and financial support mechanisms will be essential. In addition, overlapping disclosure requirements — such as business responsibility and sustainability reporting, CCTS, carbon border adjustment mechanism and others — are increasing compliance burdens. Aligning MRV frameworks across these regimes could help reduce costs and improve efficiency.

The release of these emission reduction targets represents a major milestone in operationalising India’s carbon market. While the CCTS targets appear slightly more ambitious than those under PAT, whether they are stringent enough to drive carbon price will be known once trading begins. Addressing market design challenges alongside targets will be critical in determining India’s carbon price and its potential to drive decarbonisation.