Call for more ambitious emissions targets as India advances carbon trading scheme

India's carbon market requires more ambitious emissions targets and stricter enforcement across emitting sectors to achieve the country's decarbonization goals, industry executives said, as the country progresses with its emissions trading scheme through new announcements.

The Ministry of Environment, Forests and Climate Change issued emissions caps for 282 companies across the cement, aluminum, chlor-alkali and pulp and paper sectors in a draft notification April 21. The Bureau of Energy Efficiency followed on June 3, seeking applications to appoint carbon verification agencies.

"We can consider it a cautious start, since rollout has not begun for all major industrial sectors at once," said Mohammed Sahil Ali, associate director at S&P Global Commodity Insights. "Market watchers will be eager to see if the clearing prices will exceed floor prices for carbon credits... and how diligently the non-compliance penalties will be imposed."

According to Ali, the modest start would need to ratchet up for better emissions curbs. This could test the government's ability to balance the growth of emitting sectors with the ambition of the carbon market.

MoEFCC's notification directed select companies to cut emissions by an average of 2%-3% from 2026, as part of the Carbon Credit Trading Scheme, but industry watchers said the targets could easily be met, which indicated there could be a lack of demand for carbon credits in the future market.

Under the emissions caps, Vedanta's Odisha aluminum smelter has a baseline greenhouse gas emissions intensity of 13.49 mtCO2e/mt of metal. MoEFCC's cap at 13.23 mtCO2e for the first compliance year, 2025-26, mandates a cut of only 1.93% in emissions.

"It is not difficult to achieve such a small target -- the company can do a little bit of retrofitting in existing equipment to meet this cap," Samrat Sengupta, technical director at ProClime, told Platts, part of Commodity Insights. "Such a low ambition will not push companies to invest in heavy carbon emissions reduction programs and technologies."

The risk then, is that India's carbon market could go the way of the existing emissions control schemes, such as Perform-Achieve-Trade (PAT), under which 13 designated sectors buy Energy Saving Certificates, and the Renewable Purchase Obligation (RPO), where Discoms buy Renewable Energy Certificates.

Both mechanisms are known to face a surplus of certificates amid inadequate demand.

Industry consultations

A prominent trade body representative, meanwhile, lauded the government for its timely announcement of target setting and said the emitting sectors were ready to meet their GHG emissions targets.

"The issuance of sector-specific GHG emission intensity targets is encouraging as it will accelerate adoption of advanced, low-carbon technologies, aligning with Industry's call for regulatory certainty and market-based incentives," Seema Arora, deputy director general of the Confederation of Indian Industry, told Platts.

Arora said CII would be holding sector-specific consultations and sharing the feedback with the MoEFCC. She also emphasized the need for enhanced technical and financial support to accelerate the transition.

Meanwhile, sellers of carbon credits are seeking stability, a transparent carbon pricing mechanism, and robust trading and settlement processes, Anirudh Saraswat, co-founder and chief business officer of Oriana Power told Platts.

"We at Oriana are open to considering Indian registries for carbon credits, if the pricing is competitive and stable with a clear regulatory framework," Saraswat said. "We believe this could support domestic market growth, simplify processes, and align with national targets, contributing to India's climate goals and NDCs under the Paris Agreement."

Price discovery awaited

Industry members are speculating about the implications of the low emission caps on prices and market liquidity, with some saying India's situation is similar to the rest of Asia, where carbon markets have also started cautiously.

Commodity Insights expects credit prices to remain conservative in a range of $4-$8/mtCO2e in the first two compliance cycles, Ali said. For comparison, in China, the weighted average price of CEAs was Yuan 67.90/mtCO2e ($9.45/mtCO2e) on June 6, down 0.8% week over week, Shanghai Environment and Energy Exchange data showed.

Moving forward, industry experts believe that fundamental changes in the emissions cap notification are unlikely, and companies may simply align their data with the established requirements.

Industry members anticipate that companies in nine sectors will receive emissions targets as outlined in the Bureau of Energy Efficiency's original plan, which includes petroleum refineries, textiles, petrochemicals, fertilizers, and iron and steel.

This would represent the next major step toward decarbonization, as these nine sectors account for almost 50% of India's emissions, Sengupta said.

India's emissions (excluding carbon capture, utilization and storage) in an inflection scenario are projected to rise from 3.97 billion mt of greenhouse gases in 2023 to 5.13 billion mt by 2040, data from Commodity Insights shows.